Divorce and Housing Price Shocks in Mexico

Abstract

Economic explanations of divorce are centered on the idea that individuals make marital decisions based on potential financial benefits. This paper aligns with this perspective and extends a growing literature on the impact of house price shocks on divorce rates (Rainer & Smith, 2010; Farnham et al., 2011; Harknett & Schneider, 2012; Klein, 2017) by analyzing the impact of unexpected house price shocks on Mexico's divorce rates over the past 15 years. Our research presents two novel contributions. Firstly, it focuses on Mexico, where we posit that factors like economic informality, family networks, inequality, and migration shape individuals' marital calculations distinctly from more developed countries. Secondly, we test how life circumstances, specifically the duration of marriage and socioeconomic status moderate individuals’ reactions to unexpected house price changes. Utilizing newly compiled state-level data, our findings underscore the importance of context. Notably, the duration of marriage emerges as a critical factor in how individuals respond to unexpected house price shocks. Consistent with the literature, we find that unexpected positive house price shocks stabilize marriages (Klein, 2017), particularly for marriages of longer duration. In contrast, our analysis reveals that unexpected negative house price shocks do not have a statistically significant impact on divorce rates in Mexican states. As hypothesized, couples with lower socioeconomic status demonstrate a higher propensity to divorce during unexpected positive housing price shocks. JEL: D1, Household Behavior and Family Economics