Abstract
This paper tests the intuition that households whose incomes covary relatively strongly with housing prices should own relatively little housing. Among US households, a one standard deviation in covariance between income and home prices is associated with a decrease of approximately $7500 in the value of owner occupied housing. This result arises in the presence of controls for the level and distribution of home prices. The generally positive correlations between income and home prices suggests that households enter financial markets with a greater exposure to risk than is typically modeled.
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