Accounting for Changes in the Homeownership Rate*

Abstract

This article accounts for the boom in homeownership from 1994 to 2005 by examining the roles of demographic changes and mortgage innovations. To measure the impact of these factors, we construct a quantitative general equilibrium overlapping generation model with housing. In the long-run, mortgage innovation accounts for between 56 and 70% of the increase whereas demographics account for a much smaller portion. We test this result by considering changes in mortgages after 1940. We find that the introduction of the conventional fixed rate mortgage accounts for at least 50% of the observed increase in homeownership during that period. Copyright � (2009) by the Economics Department of the University of Pennsylvania and the Osaka University Institute of Social and Economic Research Association.

Why has home ownership fallen among the young?

“…We abstract from this issue, but do discuss the possible role of taxes in the decline in young home ownership. Chambers et al (2009) study the rise in home ownership after 1995 and, in contrast to our findings, argue that weaker borrowing constraints played a big role. Kiyotaki et al (2007) explore the global run-up in house prices.…”

On the user cost and homeownership

“…Ortalo-Magné and Rady (2002) demonstrate that homeownership is an effective way of isolating housing consumption against income risk. The studies most closely related to ours are Chambers et al (2005), Li and Yao (2007), and Bajari et al (2005). Chambers et al (2005) study tenure choice in a general equilibrium model in which households can be renters and owners at the same time but abstract from price changes, taxation issues and home equity loans.…”

“…The studies most closely related to ours are Chambers et al (2005), Li and Yao (2007), and Bajari et al (2005). Chambers et al (2005) study tenure choice in a general equilibrium model in which households can be renters and owners at the same time but abstract from price changes, taxation issues and home equity loans. Li and Yao (2007) also abstract from taxation issues and focus on the welfare effects of price appreciations.…”

Interest rate fluctuations and equilibrium in the housing market

“…12 Allowing agents to sell their houses at the end of their lives gives additional wealth motive to the home buyers. 13 The total payment he made is (1 )P t 1 h t 1 D t 1 , but (1 )P t 1 h t 1 d t 1 of this payment is gone for the interest the real cost of mortgage payment to the agent. The buying process has a …xed transaction cost of and agents should make a down payment equivalent to P t h t;o;m ; where is the down payment ratio.…”