Homeownership and Housing Transitions : Explaining the Demographic Composition

The homeownership rate was relatively stable for the few decades preceding 1995, followed by a large increase between 1995-2005 and a subsequent decline over the next ten years. We document the evolution of homeownership rate across various age groups for the period 1995-2015. Two interesting empirical findings emerge. First, there are uneven variations in the homeownership rates across age: it is large for the young but small for the old. Second, the total variation is mostly driven by renter-to-owner transitions of the young. We next consider a life-cycle model featuring housing tenure decisions to explain these empirical facts. Housing is modeled as an indivisible and lumpy investment subject to both loan-to-value (LTV) and debt-to-income (DTI) constraints and transaction fees. Our quantitative model reasonably replicates the key distributions and transitions between housing tenures over the life cycle. Our analysis suggests that a variation in the DTI limit plays a crucial role in accounting for the overall rise in homeownership and the uneven behavior across age groups