Rushing into the American Dream? House Prices Growth and the Timing of Homeownership

54 Pages Posted: 14 Dec 2013 Last revised: 10 May 2016

Sumit Agarwal

National University of Singapore

Luojia Hu

Federal Reserve Bank of Chicago

Xing Huang

Washington University in St. Louis - Olin Business School

Date Written: May 1, 2016

Abstract

We use the New York Fed Consumer Credit Panel dataset to empirically examine how past house price growth influences the timing of homeownership. We find that the median individual in metropolitan areas with the highest quartile house price growth becomes a homeowner 5 years earlier than that in areas with the lowest quartile house price growth. The result is consistent with a life-cycle housing-demand model in which high past price growth increases expectations of future price growth thus accelerating home purchases at young ages. We show that extrapolative expectations formed by home-buyers are a necessary channel to explain the result.

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

JEL Classification: R21, D12, D91, D14

Suggested Citation

Agarwal, Sumit and Hu, Luojia and Huang, Xing, Rushing into the American Dream? House Prices Growth and the Timing of Homeownership (May 1, 2016). FRB of Chicago Working Paper No. 2013-13. Available at SSRN: https://ssrn.com/abstract=2366844 or http://dx.doi.org/10.2139/ssrn.2366844

Sumit Agarwal

National University of Singapore ( email )

15 Kent Ridge Drive
Singapore, 117592
Singapore
8118 9025 (Phone)

HOME PAGE: http://www.ushakrisna.com

Luojia Hu (Contact Author)

Federal Reserve Bank of Chicago ( email )

230 South LaSalle Street
Chicago, IL 60604
United States

Xing Huang

Washington University in St. Louis - Olin Business School ( email )

Simon Hall 211
Washington University in St. Louis
St. Louis, MO 63130
United States

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