Housing Decision with Divorce Risk

Marcel Fischer and Natalia Khorunzhina

MPRA Paper from University Library of Munich, Germany

Abstract: We build a realistically calibrated life-cycle model of housing decisions under divorce risk. As observed in the data, our model predicts the recent increase in divorce rates leads to reduced homeownership rates. The event of a divorce negatively affects homeownership, and this effect is long-lasting. 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.

Keywords: household finance; real estate; life cycle; divorce risk; family economics (search for similar items in EconPapers)
JEL-codes: D91 E21 G11 J12 R21 (search for similar items in EconPapers)
Date: 2018-11-14
New Economics Papers: this item is included in nep-mac and nep-ure
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (3)

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Persistent link: https://EconPapers.repec.org/RePEc:pra:mprapa:90090

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