The cross section of housing returns

We document large systematic variations in the return to single-family residential property within U.S. metropolitan areas. Areas with low income, low credit scores or high shares of black residents have higher yields and therefore higher returns. Yield spreads between low credit areas and high credit areas widened considerably during periods when the opportunity cost of credit widened most for low credit borrowers. The relationship between the local cost of credit and local expected returns also causes the areas with higher returns to also have higher risk, in sample. However we argue that the excess return that some areas earn is not purely compensation for bearing extra risk but is rather evidence for segmented housing markets where different local discount rates price local assets.

Working with Lara Loewenstein and Paul Willen

Follow up work on the capitalization of amenities into house prices also coming soon.