Standard theory predicts a positive relationship between risk and return, yet recent data show that housing returns vary positively with risk in some markets but negatively in others. This paper rationalizes these cross-market differences in the risk-return relationship for housing, and in so...

This article examines how price risk affects housing demand. It identifies two relevant channels: a financial risk effect that reduces demand, and a hedging effect that increases demand since current homes may hedge future housing costs. The latter dominates when hedging incentives are strong,...