The Impacts of Borrowing Constraints on Homeownership

Abstract

This paper utilizes micro data to directly quantify the impact of mortgage underwriting criteria on individual homeownership propensities. To determine whether a family is constrained by these criteria, the optimal home purchase price is estimated. The results indicate that wealth and income constraints both reduce homeownership propensities, with a stronger impact for wealth constraints. Mortgage market innovations of the early 1980s seem to have reduced these effects. The research indicates, however, that even in welldeveloped capital markets, the presence of borrowing constraints adversely affects homeownership propensities. Comments

Spatial Lock-in: Do Falling House Prices Constrain Residential Mobility?

“…Engelhardt (1996) shows that households significantly increase consumption following the purchase of a new home, Linneman and Wachter (1989) find evidence that income and wealth constraints affect the home ownership decision and Zorn (1989) finds that almost two thirds of households are constrained into purchasing less owner-occupied housing than they would like. Caplin, Freeman and Tracy (1998) observe that many households living in areas that suffered house price declines do not refinance their fixed rate mortgages even though they have large financial incentives to do so, suggesting that home owners who want to move may similarly be constrained from doing so.…”

Mortgage Debt and Entrepreneurship

“…Adding time-varying individual and household level controls mitigates this problem. In particular, we control for the number of children and marital status, which have been shown to be strongly associated with housing tenure and entrepreneurship (Linneman and Wachter, 1989;Evans and Leighton, 1989;Hilber, 2007), and for individual and household-level income in the year prior to the survey. Nevertheless, the potential for biases in our estimates remains, and we next present the findings of two complementary research designs that help address this concern.…”

Late starters or excluded generations? A cohort analysis of catch up in home ownership in England

“…Probit or logit models for homeownership (tenure choice) estimated on micro-data are well known in the literature. For example, Linneman and Wachter (1989) estimate Logit models for homeownership on American microdata, with a particular focus on wealth constraints. Hilber and Liu (2008) also estimate a logit mode of tenure on American microdata but focusing on the roles of own and parental wealth, and location preference in explaining the black-white ownership gap in America.…”