Panel Paper: Parental Housing Wealth and Home Purchases

Friday, November 8, 2013 : 8:20 AM
West End Ballroom E (Washington Marriott)

*Names in bold indicate Presenter

Jaclene Begley, New York University
Recently, the housing crisis severely reduced housing wealth for homeowners.  Homeownership is an important wealth-building vehicle for most households, and it is also a key way that wealth is transferred across generations. Much literature to date has focused on how parental housing tenure choices affect homeownership decisions for younger generations, and there is a well-documented correlation between parent and child tenure decisions. Additionally, there are large and persistent racial disparities in homeownership attainment, and parental wealth is a factor in predicting these differences.  However, there is little empirical research on the influence of parental housing wealth on homeownership transitions.  This paper adds to this literature by exploring how changes in parental housing wealth affect homeownership attainment for younger generations, with a specific focus on the most recent housing boom and bust.

To estimate the relationship between parental housing wealth and homeownership transitions, I rely on geocoded data from the Panel Study of Income Dynamics (PSID), which I merge with data on local housing market values, mortgage lending, and other housing characteristics from HMDA, Zillow, and the Census. I also use PSID data to estimate permanent and transitory income for all households, as permanent income is shown in other studies to be a key determinant of homeownership transitions.  

My identification strategy exploits the wide variation in the timing and intensity of the housing crisis across the nation to tease out the impact of parental housing wealth on homeownership transitions.  To estimate this relationship, I employ duration models, where the dependent variable is the transition from non-homeowner to homeowner. The key independent variable measures parental housing wealth, and changes therein, and I further control for socioeconomic, income, and local housing market characteristics for each household.  Duration models allow me to look at the cumulative impact of parental housing wealth changes over time, as well as the impact of the other time-varying covariates on transitions to homeownership. Given the prior findings of the importance of parental wealth and racial homeownership disparities, I also examine racial differences in these transitions. Additionally, I explore differences in this relationship across parents, and the effect of locational proximity to either parent on homeowner transitions.

Understanding the fallout of the housing crisis on the long-term financial wellbeing and homeownership achievement of younger generations is important for policymakers as the nation grapples with solutions to the housing crisis and recession. While prior studies examine the importance of wealth transfers and parental homeownership in homeownership attainment for younger generations, this paper provides empirical research on the impact of parental housing wealth, and wealth fluctuations on homeownership transitions for younger generations.