Homeowners' Risk Premia: Evidence from Zip Code Housing Returns

While homeownership provides consumption benefits, housing is risky. Using zip code housing returns, we document that homeowners are compensated for bearing housing risk. Our sample covers more than 9,000 zip codes across 135 metropolitan statistical areas (MSAs), representing almost 70% of the U.S. population. We find that in 71% of the MSAs housing displays investment good properties with significant heterogeneity across MSAs in terms of which risk factors are priced. Local and idiosyncratic housing risks are the most important risks for homeowners, with the latter more likely priced in MSAs with lower loan--to--value and rent--to--price ratios.