Has U.S. Home Ownership Reached Bottom Yet? Evidence from Pre and Post-Bubble Household Tenure Choice

Abstract

In the summer of 2006, U.S. national home price peaked, and simultaneously the U.S. home ownership rate also reached its highest level in history. Ever since then, the U.S. home ownership rate has shown steady decline, as some households are foreclosed out of their homes, and some households are discouraged to own their own homes. Now home price has shown strong rebound since December 2012, would home ownership start to rebound as well? This paper tries to answer that question and forecasts the U.S. home ownership, using an empirical household tenure choice model. The analysis is conducted in two stages. First, we estimate a reduced form logistic model for household tenure choice on data extracted from the U.S. Survey of Income and Program Participation (SIPP). Micro-level monthly data of approximately 70,000 households over 8 years is used to conduct this empirical estimation. Second, the model is fed with macroeconomic scenario forecasts, e.g. interest rate, house price, unemployment rates, etc. to predict the future household tenure choice, and eventually forecast the home ownership rate. Overall, we find tenure choice is significantly influenced by household demographics, socioeconomic characteristics, macroeconomic variables, and policy variables, such as income tax rate and property tax rate. Furthermore, we find U.S. home ownership rate will rise under the most likely economic scenario. However, under stressful scenarios, home ownership rate could still decrease. The importance of this research to housing policy is two-fold: first, it estimates the marginal response of household tenure choice to policy variables so policymakers can better understand the impact of those policies on household behavior; second, it offers a baseline and possible deviations of home ownership forecast, which can be used as benchmarks for future housing policy decision.