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

  • Agarwal, Sumit


    (Federal Reserve Bank of Chicago)

  • Hu, Luojia

    (Federal Reserve Bank of Chicago)

  • Huang, Xing


    (University of California, Berkeley)

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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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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  16. Andra Ghent, 2014. "Are Young Borrowers Bad Borrowers? Evidence from the Credit CARD Act of 2009," 2014 Meeting Papers 130, Society for Economic Dynamics.
  17. Agarwal, Sumit & Amromin, Gene & Ben-David, Itzhak & Chomsisengphet, Souphala & Evanoff, Douglas D., 2011. "The Role of Securitization in Mortgage Renegotiation," Working Paper Series 2011-2, Ohio State University, Charles A. Dice Center for Research in Financial Economics.
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