Monetary Policy and the Homeownership Rate

James Graham and Avish Sharma

No 2024-11, Working Papers from University of Sydney, School of Economics

Abstract: How does monetary policy affect the homeownership rate? A monetary contraction may have contrasting effects on ownership due to rising interest rates, falling incomes, and lower house prices. To investigate, we build a heterogeneous household life-cycle model with housing tenure decisions, mortgage finance, and an exogenous stochastic process to capture the macroeconomic effects of monetary policy. Following a contractionary shock, homeownership initially falls due to rising mortgage rates, but rises over the medium term given falling house prices. We also show that differences in mortgage credit conditions, mortgage flexibility, and household expectations formation can amplify homeownership dynamics following a shock.

Keywords: Homeownership; monetary policy; interest rates; house prices; heterogeneous households (search for similar items in EconPapers)
Date: 2024-06
New Economics Papers: this item is included in nep-ban, nep-cba, nep-dge, nep-mac, nep-mon and nep-ure
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Working Paper: Monetary Policy and the Homeownership Rate (2024)
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