Working Paper: CEPR ID: DP17464
Authors: Matteo Benetton; Marianna Kudlyak; John Mondragon
Abstract: Using a nationally-representative panel of consumer credit records for the US from 1999 to 2021, we document a positive correlation between child and parent homeownership. We propose a new causal mechanism behind this relationship: parents extract home equity to help finance their child's home purchase. To identify the mechanism, we use fixed effect, event study, local projection and matching methods. We find that children whose parents extract equity: (i) are 60-80% more likely to become homeowners; (ii) have lower leverage at origination; and (iii) buy higher-valued homes and at a younger age. The effects are stronger when housing affordability is worse and children's financial constraints are more likely to bind. Using a simple structural model, we find that in a counterfactual economy with no role for parental equity, intergenerational homeownership mobility increases.
Keywords: Home Equity; Intergenerational Wealth Inequality; Mortgages; Housing; Household Finance
JEL Codes: No JEL codes provided
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Parental equity extraction (G51) | Child homeownership (R21) |
| Parental equity extraction in the year (G51) | Child homeownership (R21) |