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Rushing into American Dream? House Prices, Timing of Homeownership, and Adjustment of Consumer Credit

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Author Info

  • Agarwal, Sumit

    ()
    (Federal Reserve Bank of Chicago)

  • Hu, Luojia

    (Federal Reserve Bank of Chicago)

  • Huang, Xing

    ()
    (University of California, Berkeley)

Abstract

In this paper we use a large panel of individuals from Consumer Credit Panel dataset to study the timing of homeownership as a function of credit constraints and expectations of future house price. Our panel data allows us to track individuals over time and we model the transition probability of their first home purchase. We find that in MSAs with highest quartile house price growth, the median individual become homeowners earlier by 5 years in their lifecycle compared to MSAs with lowest quartile house price growth. The result suggests that the effect of expectation dominates the effect of credit constraints and high price growth leads individuals to purchase home earlier. We further study other credit/loan behaviors around first-home purchases for young and old buyers. We find that younger buyers make more adjustments in their finances after the purchase– taking out more debt/credit, and yet they do not appear to experience larger increase in delinquency than older buyers.

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Bibliographic Info

Paper provided by Federal Reserve Bank of Chicago in its series Working Paper Series with number WP-2013-13.

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Length: 51 pages
Date of creation: 01 Nov 2013
Date of revision:
Handle: RePEc:fip:fedhwp:wp-2013-13

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Related research

Keywords: Housing; Homeownership; Consumer Finance; Credit Constraints; Life Cycle;

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References

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  1. Todd Sinai & Nicholas S. Souleles, 2003. "Owner-Occupied Housing as a Hedge Against Rent Risk," NBER Working Papers 9462, National Bureau of Economic Research, Inc.
  2. Denice DiPasquale & Edward L. Glaeser, 1997. "Incentives and Social Capital: Are Homeowners Better Citizens?," Harvard Institute of Economic Research Working Papers 1815, Harvard - Institute of Economic Research.
  3. Sumit Agarwal & Gene Amromin & Itzhak Ben-David & Souphala Chomsisengphet & Douglas D. Evanoff, 2011. "The role of securitization in mortgage renegotiation," Working Paper Series WP-2011-02, Federal Reserve Bank of Chicago.
  4. Dean Karlan & Jonathan Zinman, 2010. "Expanding Credit Access: Using Randomized Supply Decisions to Estimate the Impacts," Review of Financial Studies, Society for Financial Studies, vol. 23(1), pages 433-464, January.
  5. Louis S. Jacobson & Robert J. LaLonde & Daniel Sullivan, 1992. "Earnings Losses of Displaced Workers," Upjohn Working Papers and Journal Articles 92-11, W.E. Upjohn Institute for Employment Research.
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  11. James X. Sullivan, 2005. "Borrowing during unemployment: unsecured debt as a safety net," Proceedings 958, Federal Reserve Bank of Chicago.
  12. Jonas D. M. Fisher & Martin Gervais, 2009. "Why has home ownership fallen among the young?," Working Paper Series WP-09-01, Federal Reserve Bank of Chicago.
  13. Agarwal, Sumit & Amromin, Eugene & Ben-David, Itzhak & Chomsisengphet, Souphala & Piskorski, Tomasz & Seru, Amit, 2013. "Policy Intervention in Debt Renegotiation: Evidence from the Home Affordable Modification Program," Working Paper Series WP-2013-27, Federal Reserve Bank of Chicago.
  14. Louis S. Jacobson & Robert J. LaLonde & Daniel G. Sullivan, 1993. "Long-term earnings losses of high-seniority displaced workers," Economic Perspectives, Federal Reserve Bank of Chicago, issue Nov, pages 2-20.
  15. Agarwal, Sumit & Driscoll, John C. & Gabaix, Xavier & Laibson, David I., 2009. "The Age of Reason: Financial Decisions over the Life-Cycle with Implications for Regulation," Scholarly Articles 4554335, Harvard University Department of Economics.
  16. Albert Saiz, 2010. "The Geographic Determinants of Housing Supply," The Quarterly Journal of Economics, MIT Press, vol. 125(3), pages 1253-1296, August.
  17. Peter Debbaut & Andra C. Ghent & Marianna Kudlyak, 2013. "Are young borrowers bad borrowers? Evidence from the Credit CARD Act of 2009," Working Paper 13-09, Federal Reserve Bank of Richmond.
  18. Morse, Adair, 2011. "Payday lenders: Heroes or villains?," Journal of Financial Economics, Elsevier, vol. 102(1), pages 28-44, October.
  19. Orazio Attanasio & Renata Bottazzi & Hamish Low & Lars Nesheim & Matthew Wakefield, 2012. "Modelling the Demand for Housing over the Lifecycle," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 15(1), pages 1-18, January.
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