To what extent do capital market factors affect home prices? This paper examines quarterly changes in median sales prices for homes across more than 3,000 U.S. ZIP Codes in 203 metropolitan areas from 2001 to 2006 to investigate home price sensitivity to returns on U.S. stocks and bonds. The findings reveal that home-price changes are positively related to returns on stocks and bonds, on average. They also show that home prices in higher priced ZIP Codes have greater exposure to capital market risk factors, consistent with higher levels of wealth and capital market participation, on average, among owners of higher priced homes.
