Housing Price Insurance: A Study of the Willingness to Pay

Sammanfattning: The purpose of this study is to empirically identify factors that affect the willingness to pay for housing price insurance. Applying a Tobit model to data from a market survey performed in Uppsala 2007, this study shows that the willingness to pay for housing price insurance is negatively correlated with homeowners equity in their house, household income and the horizon for the investment in the house and that the willingness to pay is positively correlated with the respondents level of risk aversion. For a household with mean characteristics in the sample the willingness to pay is around 150 SEK/MSEK housing per month. A rough estimate of the cost of insurance based on the valuation of a traditional sell option on historical data shows a likely cost of insurance ranging from about 750 SEK/MSEK housing per month for the one year horizon down to zero cost for 8 years and longer horizons. A respondent with mean characteristics stated that he would be likely to live in his new home in 5-10 years and the stated willingness to pay cover the estimated cost of insurance at about 6 years and longer horizons.