A House Without a Ring: The Role of Changing Marital Transitions for Housing Decisions

This paper shows that the evolving likelihood of marriage and divorce is an essential factor in accounting for the changes in housing decisions over time in the United States. To quantify the importance of this channel, I build a life-cycle model of single and married households who face exogenous age-dependent marital transition shocks. I then estimate the parameters of the model by a limited information Bayesian method to match the moments from 1995's cross-section data. I conduct a decomposition analysis between 1970 and 1995, two years with similar real house prices but substantially different probabilities of marital transitions. I find that the change in the likelihood of marital transitions accounts for 29% of the observed increase in the homeownership rate of singles. This portion is substantial given that the changes in downpayment requirements, earnings risk, and spousal labor productivity jointly replicate 45% of the change. When the change in marital transitions is shut down, the marrieds' housing asset share increases, which is opposite to the data's pattern. Then I extend my analysis to study whether the ongoing change in marital transitions still plays a role in explaining housing decisions in recent years, which have seen dramatically changing house prices. In addition to other factors such as credit constraints, wages, and beliefs on price appreciation that are often suggested as drivers for homeownership increase during the housing boom in the mid-2000s, I show that the continuing decrease in marriage contributes to an approximately 7% increase in the homeownership rate for young singles.