Timing Of Home Purchase Research Articles

Housing Lock: Dutch Evidence on the Impact of Negative Home Equity on Household Mobility

This paper employs Dutch administrative population data to test the “housing lock hypothesis”: the conjecture that homeowners with negative home equity, low levels of financial assets, and restricted opportunities to borrow reduce their mobility. Variation in home equity driven by the timing of home purchase within a municipality and the harshness of Dutch recourse laws facilitates identification of housing lock effects. The 2SLS estimate for the effect of negative home equity is a 74–79 percent decline in mobility, where effects are substantially larger for households with low financial asset holdings or moves over longer distances. (JEL G51, R21, R23, R31)

The Mortgage Piggy Bank: Building Wealth Through Amortization

Mortgage amortization schedules are illiquid savings plans comparable in size to pension programs; however, little is known about their effects on wealth accumulation. Using individual administrative data and plausibly exogenous variation in the timing of home purchase (ex. childbirth-driven) around a 2013 Dutch reform, we find a near one-for-one rise in net worth for each dollar of amortization. Households leave other savings and liabilities unchanged, and instead increase labor supply and reduce consumption. Effects hold even for regular savers and older households. This has important macroprudential implications and suggests homeownership financed via amortizing mortgages is instrumental for household wealth building.

Housing Lock: Dutch Evidence on the Impact of Negative Home Equity on Household Mobility

This paper employs Dutch administrative population data to test the “housing lock hypothesis”: the conjecture that homeowners with negative home equity, low levels of financial assets and restricted opportunities to borrow reduce their mobility. We exploit variation in home equity solely driven by the timing of home purchase within a municipality and the harshness of Dutch recourse laws, which allow us to isolate the housing lock channel. Instrumented negative home equity is associated with a 74-79% decline in mobility, and the effects are substantially larger for households with low financial asset holdings or moves over longer distances.

Anchoring and housing choice: Results of a natural policy experiment

This research employs data from a natural experiment to assess the effects of behavioral heuristics on housing choice and public program management. The analysis focuses on programs designed to privatize public housing in Israel. The government programs provided the tenants with a call (real) option to purchase their rental unit at a discounted exercise price. We employ a large panel of transactions over the 1999–2008 period to evaluate whether the tenants used prior program price reductions as anchors in their purchase decisions. The results of hazard model estimation provide strong evidence of anchoring in the timing of home purchase. Further, model simulation suggests that by accounting for the anchoring heuristic, program managers could have both accelerated purchases and significantly increased government revenues associated with privatization. We also find evidence that anchoring varies with individual and market characteristics.

Are the Disabled Less Loss Averse? New Evidence from the Housing Market

Empirical findings in physiology and psychology show that disabled persons often develop physical and mental mechanisms to compensate for disabilities. Coping mechanisms may not be limited to the psycho-physiological domain, however, and may extend to economic behavior. Improved economic decision-making could result in better survival prospects among disabled persons in modern, knowledge-based societies. In this study, we test for differences in cognitive bias and economic behavioral heuristics among physically disabled and non-disabled populations. Using unique micro data from an Israeli government natural experiment, we assess loss aversion in home purchase among disabled and non-disabled households. Results of survival analysis indicate that the physically disabled are substantially less loss averse in timing of home purchase. Also, loss aversion attenuates with degree of disability. Research findings provide new evidence suggesting that the compensatory mechanisms of disabled households extend to the economic domain and result in more rationale economic decision-making.

Anchoring and Housing Choice: Results of a Natural Policy Experiment

This research employs data from a natural experiment to assess the effects of behavioral heuristics on housing choice and public program management. The analysis focuses on programs designed to privatize public housing in Israel. The government programs provided tenants with a call (real) option to purchase their rental unit at a discounted exercise price. We employ a large panel of transactions over the 1999-2008 period to evaluate whether tenants used prior program price reductions as anchors in their purchase decisions. Results of hazard model estimation provide strong evidence of anchoring in the timing of home purchase. Further, model simulation suggests that by accounting for the anchoring heuristic, program managers could have both accelerated purchases and significantly increased government revenues associated with privatization. We also find evidence that anchoring varies with individual and market characteristics.

Unemployment Risk, Precautionary Saving, and Durable Goods Purchase Decisions

In this paper household level data are used to explore whether unemployment risk is an important factor in the timing of consumers' durable goods purchase decisions. A theoretical model is presented in which both income uncertainty and household debt play a direct role, offering a potential explanation for fluctuations in durable goods spending over the business cycle. The model predicts that consumers respond to increases in unemployment risk by postponing purchases of the durable good and reducing their spending on nondurable goods in order to bolster their precautionary buffer-stock of liquid assets. Consistent with the model, there is evidence that unemployment risk has a direct effect on the timing of home purchases: households with a higher probability of becoming unemployed are less likely to have recently purchased a home or a car, even after controlling for demographic variables. A prediction that the consumption decisions of older consumers are relatively less sensitive to unemployment risk is also validated. Another finding consistent with the theoretical model is that consumers who are observed to have bought a house despite facing high unemployment risk tend to have more liquid assets left over than homebuyers who face ordinary or low unemployment risks.

Unemployment Risk, Precautionary Saving, and Durable Goods Purchase Decisions

In this paper household level data are used to explore whether unemployment risk is an important factor in the timing of consumers' durable goods purchase decisions. A theoretical model is presented in which both income uncertainty and household debt play a direct role, offering a potential explanation for fluctuations in durable goods spending over the business cycle. The model predicts that consumers respond to increases in unemployment risk by postponing purchases of the durable good and reducing their spending on nondurable goods in order to bolster their precautionary buffer-stock of liquid assets. Consistent with the model, there is evidence that unemployment risk has a direct effect on the timing of home purchases: households with a higher probability of becoming unemployed are less likely to have recently purchased a home or a car, even after controlling for demographic variables. A prediction that the consumption decisions of older consumers are relatively less sensitive to unemployment risk is also validated. Another finding consistent with the theoretical model is that consumers who are observed to have bought a house despite facing high unemployment risk tend to have more liquid assets left over than homebuyers who face ordinary or low unemployment risks.

Family Transitions, Housing Market Context, and First Home Purchase by Young Married Households

This paper examines the relation of family transitions and housing market context to home purchase by young married households. The effects of family socioeconomic and housing market characteristics are examined. Earnings of the husband and the wife number of children county-level median home value and county-level home ownership rate each predict the timing of home purchases. There is no evidence that the effects of family variables differ by housing market characteristics. This suggests that during the 1970s families did not adapt to higher housing prices by different fertility or work behavior. The data are from the U.S. Panel Study of Income Dynamics. (EXCERPT)