Leverage and Elderly Homeownerss Decisions to Downsize

Abstract

AbstractWe study the effect of financial leverage, measured using the loan-to-value (LTV) ratios, on elderly homeowners’ decisions to downsize. Using a 1999–2011 sample of elderly homeowners from the Panel Study of Income Dynamics, we find that a higher LTV ratio increases the propensity to downsize. Elderly homeowners with higher LTV ratios are more likely to move into properties with fewer rooms, to move from single-family properties into multifamily properties, and to move into less expensive homes. Our point estimates suggest that on average, a 10 per cent increase in the LTV ratio is associated with a 7.7–9.7 per cent increase in the probability to downsize.