Accounting for Changes in the Homeownership Rate

50 Pages Posted: 31 Aug 2007

See all articles by Matthew Chambers

Matthew Chambers

Towson University

Carlos Garriga

Federal Reserve Banks - Research Division

Don Schlagenhauf

Florida State University

Date Written: August 2007

Abstract

After three decades of being relatively constant, the homeownership rate increased over the period 1994 to 2005 to attain record highs. The objective of this paper is to account for the observed boom in ownership by examining the role played changes in demographic factors and innovations in the mortgage market which lessened downpayment 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 and 70 percent. Demographic factors account for between 16 and 31 percent of the change. Transitional analysis suggests that demographic factors play a more important, but not dominant, role the further away from the long-run equilibrium. From a distributional perspective, mortgage market innovations have a larger impact explaining participation rate changes of younger households, while demographic factors seem to be the key to understanding the participation rate changes of older households. Our analysis suggests that the key to understand 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 contacts, accounts for at least fifty percent of the observed increase in homeownership during that period.

Keywords: Mortgage innovation, heterogeneity, life cycle

JEL Classification: E2, E6

Suggested Citation

Chambers, Matthew and Garriga, Carlos and Schlagenhauf, Don, Accounting for Changes in the Homeownership Rate (August 2007). Available at SSRN: https://ssrn.com/abstract=1010966 or http://dx.doi.org/10.2139/ssrn.1010966

Matthew Chambers (Contact Author)

Towson University ( email )

8000 York Road, ST 100A
Towson, MD 21204
United States

Carlos Garriga

Federal Reserve Banks - Research Division ( email )

P.O. Box 442
St. Louis, MO 63166-0442
United States
(314) 444-7412 (Phone)
(314) 444-8731 (Fax)

Don Schlagenhauf

Florida State University ( email )

Department of Economics
Tallahasse, FL 32306
United States

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