Panel Paper: Changing the American Dream? Post-Recession Drivers of Preferences for Homeownership

Friday, November 9, 2012 : 8:00 AM
Baltimore Theatre (Radisson Plaza Lord Baltimore Hotel)

*Names in bold indicate Presenter

Rachel Bogardus Drew, University of Massachusetts, Boston and Christopher Herbert, Harvard University

The recent recession and foreclosure crisis has raised many questions about preferences for homeownership, and in particular whether preferences have changed as a result of individuals’ experiences with house price declines, underwater loans, and other consequences of housing market distress. This paper answers some of those questions by evaluating recent survey data on stated preferences for owning versus renting housing. Controlling for a number of individual and household characteristics, we test whether measures of personal and market-level exposure to housing market distress are associated with differences in views on homeownership. In so doing, we may infer whether the effects of the recent crisis in housing markets are likely to have had an impact on preferences for homeownership, and if so, among which groups and markets are such impacts more pronounced. These findings have important implications for both the housing industry and policymakers as they try to gauge the impact of the housing bust on future demand for owner-occupied housing.

The analysis developed for this paper estimates logit models to assess the odds of survey respondents stating a preference for owning over renting, both as a financial and a residential choice. It finds that current tenure and mortgage status are the primary drivers of individual views on owning and buying homes, and that race, age, income, and family composition are all also significantly related to preferences for homeownership. With respect to the effects of recent housing market distress, the analysis finds that owners underwater on their mortgages and those that report knowing someone else in default are less likely to see homeownership favorably, relative to similar renters. However, exposure to local declines in house prices and increases in mortgage delinquency rates did not have an impact on preferences for homeownership as a financial choice, and only small associations with views on owning as a residential choice among current owners.

The results of this analysis suggest that preferences for homeownership, while slightly lower among individuals with direct exposure to the effects of house price declines and mortgage delinquencies, remains generally strong across the population. Traditional drivers of tenure preferences, including individual and household level characteristics, are still strongly associated with different views on the desirability of owning as a residential and financial choice. Simply living in an area with a distressed housing market is not a sufficient condition to affect such preferences. In short, the dream of homeownership appears to be alive and well for most Americans.

Full Paper: