Rushing into the American Dream? House Prices, the Timing of Homeownership, and the Adjustment of Consumer Credit (Revised May 2015)
Last Updated: 06/08/15
In this paper, we use a large panel of individuals from the Federal Reserve Bank of New York’s Consumer Credit Panel data set to empirically examine how past house price growth influences the timing of homeownership over the life cycle. Our panel data allow us to track individuals over time, and we model the transition probability of their first home purchase. We find that the median individual in metropolitan areas with the highest quartile house price growth becomes a homeowner 5 years earlier in the lifecycle compared with the median individual in metropolitan areas with the lowest quartile house price growth. The result is consistent with a life-cycle housing-demand model in which high past price growth leads to expectations of high future price growth and thus accelerates home purchases at young ages. We further study other credit/loan behaviors after first home purchases among young and old buyers. We find that young buyers make more adjustments in their finances after the purchase (e.g., taking out more debt/credit), yet they do not appear to experience larger increases in delinquency rates than old buyers.