Borrowing Constraints and the Tenure Choice of Young Households

30 Pages Posted: 13 Apr 1998 Last revised: 16 May 2012

See all articles by Donald R. Haurin

Donald R. Haurin

Ohio State University (OSU) - Economics

Patric H. Hendershott

University of Aberdeen - Centre for Property Research; National Bureau of Economic Research (NBER)

Susan M. Wachter

University of Pennsylvania - Wharton School, Department of Real Estate ; University of Pennsylvania - Finance Department

Date Written: June 1996

Abstract

In this paper we analyze the factors that affect the tenure choice of young adults, highlighting the impact of mortgage lender imposed borrowing constraints. The data set is a panel of youth age 20-33 for the years 1985-90. Our methods differ from most prior studies in many ways including consideration of possible sample selection bias, a richer model of the stochastic error structure, better measurement of which households are bound by borrowing constraints, and a fuller consideration of the endogeneity of wealth and income. Once all changes are implemented, we find ownership tendencies to be quite sensitive to economic variables. Specifically, potential earnings, the relative cost of owning a home, and especially borrowing constraints affect the tendency to own a home. In our sample of youth, 37% of households are constrained even after choosing their loan-to-value ratio to minimize the impact of the separate wealth and income requirements. The constraints reduce the probability of ownership of these households by 10 to 20 percentage points (a third to a half) depending on the particular characteristics of the household.

Suggested Citation

Haurin, Donald R. and Hendershott, Patric H. and Wachter, Susan M., Borrowing Constraints and the Tenure Choice of Young Households (June 1996). NBER Working Paper No. w5630. Available at SSRN: https://ssrn.com/abstract=9139

Donald R. Haurin

Ohio State University (OSU) - Economics ( email )

154 N. Oval Mall
1010G Derby Hall
Columbus, OH 43210-1172
United States
614-292-0482 (Phone)
614-292-9530 (Fax)

Patric H. Hendershott (Contact Author)

University of Aberdeen - Centre for Property Research ( email )

Aberdeen AB24 2UF
Scotland

National Bureau of Economic Research (NBER) ( email )

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

Susan M. Wachter

University of Pennsylvania - Wharton School, Department of Real Estate ( email )

The Wharton School
3620 Locust Walk
Philadelphia, PA 19104-6330
United States
215-898-6355 (Phone)

HOME PAGE: http://real.wharton.upenn.edu/~wachter/index.html

University of Pennsylvania - Finance Department ( email )

The Wharton School
3620 Locust Walk
Philadelphia, PA 19104
United States

HOME PAGE: http://real.wharton.upenn.edu/~wachter/index.html

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