Borrowing Constraints and the Tenure Choice of Young Households

Donald Haurin, Patric Hendershott and Susan Wachter

No 5630, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: In this paper we analyze the factors that affect the tenure choice of young adults, highlighting the impact of mortgage lender imposed borrowing constraints. The data set is a panel of youth age 20-33 for the years 1985-90. Our methods differ from most prior studies in many ways including consideration of possible sample selection bias, a richer model of the stochastic error structure, better measurement of which households are bound by borrowing constraints, and a fuller consideration of the endogeneity of wealth and income. Once all changes are implemented, we find ownership tendencies to be quite sensitive to economic variables. Specifically, potential earnings, the relative cost of owning a home, and especially borrowing constraints affect the tendency to own a home. In our sample of youth, 37% of households are constrained even after choosing their loan-to-value ratio to minimize the impact of the separate wealth and income requirements. The constraints reduce the probability of ownership of these households by 10 to 20 percentage points (a third to a half) depending on the particular characteristics of the household.

JEL-codes: R21 (search for similar items in EconPapers)
Date: 1996-06
Note: PE
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (42)

Published as Journal of Housing Research, Vol. 8, 1997.

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