Are Pricier Houses Less Risky? Evidence from China

Houses are the largest component of most households’ wealth and their risk is important. Recent research shows that pricier houses have lower price appreciation risk. This relationship can be due to competing reasons: risk is related to the price level, or risk is related to location-related features that are reflected in prices. This paper disentangles these two relationships by analyzing condo data from China with a special feature: Condos in the same subdivision have identical location but different prices. Our results indicate that larger and pricier condos are less risky than smaller ones in the same location. Furthermore, for condos with the same size, those with higher price per square meter are less risky. These results seem to indicate that pricier houses are less risky not due to location-related features that are reflected in prices.