Homeownership and Housing Transitions: Explaining the Demographic Composition

Eunseong Ma and Sarah Zubairy

Departmental Working Papers from Department of Economics, Louisiana State University

Abstract: The homeownership rate was relatively stable for the few decades preceding 1995, followed by a large increase between 1995-2005 and a subsequent decline over the next ten years. We document the evolution of homeownership rate across various age groups for the period 19952015. Two interesting empirical fndings emerge. First, there are uneven variations in the homeownership rates across age: it is large for the young but small for the old. Second, the total variation is mostly driven by renter-to-owner transitions of the young. We next consider a life-cycle model featuring housing tenure decisions to explain these empirical facts. Housing is modeled as an indivisible and lumpy investment subject to both loan-to-value (LTV) and debt-to-income (DTI) credit constraints and transaction fees. Our quantitative model reasonably replicates the key distributions and transitions between housing tenures over the life cycle. Our analysis suggests that variations in the DTI limit play a crucial role in accounting for the overall rise in homeownership and the uneven behavior across age groups.

Date: 2020-07
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Journal Article: HOMEOWNERSHIP AND HOUSING TRANSITIONS: EXPLAINING THE DEMOGRAPHIC COMPOSITION (2021)
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Persistent link: https://EconPapers.repec.org/RePEc:lsu:lsuwpp:2020-04

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