Working Paper: NBER ID: w5630
Authors: Donald R. Haurin; Patric H. Hendershott; Susan M. Wachter
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.
Keywords: Borrowing Constraints; Homeownership; Young Households
JEL Codes: R21; D14
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| potential earnings (J31) | homeownership probability (R21) |
| relative cost of owning a home (R21) | homeownership probability (R21) |
| borrowing constraints + household characteristics (G51) | homeownership probability (R21) |
| borrowing constraints (F34) | homeownership probability (R21) |
| endogeneity of wealth and income (D31) | homeownership probability (R21) |