The Missing Home Buyers: Regional Heterogeneity and Credit Contractions

Abstract

This paper demonstrates that the protracted decrease in young homeownership since the Great Recession was driven by high-house price regions, despite credit standards changing mostly nationally. Using a panel of U.S. metro areas, I calibrate an equilibrium spatial macro-finance model with overlapping generations of mobile households. Aggregate and regional housing dynamics are explained more by the heterogeneous impacts of an aggregate credit tightening than by local shocks. Lower Millennial income and wealth amplify this effect. The impact of subsidies to first-time buyers is dampened, because they fail to stimulate regions that suffer larger busts. Place-based subsidies achieve larger gains.

Keywords: Spatial macro-finance, home ownership, first-time buyers, mortgages, credit standards, house prices, Millennials

JEL Classification: E21, G11, G21, G51, J11, R30