HOUSING DECISION WITH DIVORCE RISK

Marcel Fischer and Natalia Khorunzhina

International Economic Review, 2019, vol. 60, issue 3, 1263-1290

Abstract: We build a life‐cycle model of housing decisions under divorce risk that predicts that the recent increase in divorce rates leads to reduced homeownership rates. The risk of a divorce triggers a precautionary‐savings motive. However, this motive is weaker when individuals can invest in owner‐occupied homes because homeowners' higher savings partially substitute for precautionary savings. When young, the larger asset accumulation due to divorce‐risk‐induced precautionary savings enables households to buy homes earlier, whereas the presence of transaction costs leads to reduced homeownership for middle‐aged and older households when divorce risk goes up.

Date: 2019
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https://doi.org/10.1111/iere.12385

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Working Paper: Housing Decision with Divorce Risk (2018)
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