We study a two-sector general equilibrium model of housing and non-housing production where heterogeneous households face limited risk-sharing opportunities as a result of incomplete financial markets. The model generates substantial variability in national house price-rent ratios, both because they fluctuate endogenously with the state of the economy and because they rise in response to a relaxation of credit constraints and decline in housing transaction costs (financial market liberalization). We find that a financial liberalization plus an infusion of exogenous capital calibrated to match the increase in foreign ownership of U.S. Treasuries from 2000-2007 generates more than half of the increase in three out of four national house price-rent ratios over this period. A financial market liberalization drives risk premia in both the housing and equity market down, shifts the composition of wealth for all age and income groups towards housing, and leads to a short-run boom in aggregate consumption but a short-run bust in investment. By contrast, an infusion of foreign capital by governmental holders increases risk-premia in both the housing and equity markets. Finally, the model implies that pro-cyclical increases in equilibrium price-rent ratios reflect lower future housing returns, not higher future rents.