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Accounting for changes in the homeownership rate

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Author Info
Matthew Chambers
Carlos Garriga
Don E. Schlagenhauf

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Abstract

After three decades of being relatively constant, the homeownership rate increased over the 1994–2005 period to attain record highs. The objective of this paper is to account for the observed boom in ownership by examining the role played by changes in demographic factors and innovations in the mortgage market that lessened down payment requirements. To measure the aggregate and distributional impact of these factors, we construct a quantitative general equilibrium overlapping-generation model with housing. We find that the long-run importance of the introduction of new mortgage products for the aggregate homeownership rate ranges from 56 percent to 70 percent. Demographic factors account for between 16 percent and 31 percent of the change. Transitional analysis suggests that demographic factors play a more important but not dominant role farther from the long-run equilibrium. From a distributional perspective, mortgage market innovations have a larger impact on participation rate changes of younger households, and demographic factors seem to be the key to understanding the participation rate changes of older households. Our analysis suggests that the key to understanding the increase in the homeownership rate is the expansion of the set of mortgage contracts. We test the robustness of this result by considering changes in mortgage financing after World War II. We find that the introduction of the conventional fixed-rate mortgage, which replaced balloon contracts, accounts for at least 50 percent of the observed increase in homeownership during that period.

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Paper provided by Federal Reserve Bank of Atlanta in its series Working Paper with number 2007-21.

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Date of creation: 2007
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Handle: RePEc:fip:fedawp:2007-21

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  1. Jonas D. M. Fisher & Martin Gervais, 2007. "First-time home buyers and residential investment volatility," Working Paper Series WP-07-15, Federal Reserve Bank of Chicago. [Downloadable!]
  2. Sang-Wook Stanley Cho, 2007. "Accounting for Lifecycle Wealth Accumulation: The Role of Housing Institution," Discussion Papers 2007-27, School of Economics, The University of New South Wales. [Downloadable!]
  3. Matthew S. Chambers & Carlos Garriga & Don Schlagenhauf, 2007. "Equilibrium mortgage choice and housing tenure decisions with refinancing," Working Paper 2007-25, Federal Reserve Bank of Atlanta. [Downloadable!]
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  4. Sang-Wook Stanley Cho, 2007. "Household Wealth Accumulation and Portfolio Choices in Korea," Discussion Papers 2007-26, School of Economics, The University of New South Wales. [Downloadable!]
  5. Antonia Diaz & Maria Jose Luengo Prado, 2008. "On the User Cost and Homeownership," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 11(3), pages 584-613, July. [Downloadable!] (restricted)
    Other versions:
  6. Jonas D. M. Fisher & Saad Quayyum, 2006. "The great turn-of-the-century housing boom," Economic Perspectives, Federal Reserve Bank of Chicago, issue Q III, pages 29-44. [Downloadable!]
  7. Wenli Li & Rui Yao, 2005. "The life-cycle effects of house price changes," Working Papers 05-7, Federal Reserve Bank of Philadelphia. [Downloadable!]
  8. Arce, Oscar & López-Salido, J David, 2006. "House Prices, Rents and Interest Rates Under Collateral Constraints," CEPR Discussion Papers 5689, C.E.P.R. Discussion Papers. [Downloadable!] (restricted)
  9. Matthew Chambers & Carlos Garriga & Don Schlagenhauf, 2007. "Mortgage contracts and housing tenure decisions," Working Papers 2007-040, Federal Reserve Bank of St. Louis. [Downloadable!]
  10. Thesia I. Garner & Randal Verbrugge, 2007. "Puzzling Divergence of U.S. Rents and User Costs, 1980-2004: Summary and Extensions," Working Papers 409, U.S. Bureau of Labor Statistics. [Downloadable!]
  11. Nobuhiro Kiyotaki & Alexander Michaelides & Kalin Nikolov, 2007. " Winners and Losers in Housing Markets," CDMA Conference Paper Series 0705, Centre for Dynamic Macroeconomic Analysis. [Downloadable!]
  12. Carlos Garriga & William T. Gavin & Don Schlagenhauf, 2006. "Recent trends in homeownership," Review, Federal Reserve Bank of St. Louis, issue Sep, pages 397-412. [Downloadable!]
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