On the Determinants of House Value Volatility

Few studies have analyzed the determinants of house value volatility at the level of individual houses. This paper uses two panels of the American Housing Survey covering 1974-2003 to test four hypotheses related to the determinants of house value volatility. The findings are that 1) house values at both ends of the quality distribution have greater variance than those with average quality levels, 2) the more atypical a house is, the greater the variance of house value, 3) the more highly "land leveraged" a house is, the greater the variance of its value, and 4) house values owned by minority households have greater variance than those of whites.

The Demand for Educational Quality: Combining a Median Voter and Hedonic House Price Model

Communities differ in both the bundle of amenities offered to residents and the implicit price of these amenities. Thus, households are faced with a choice of which bundle to select when they select their residence. This choice implies households make tradeoffs among the amenities; that is, the amenities are substitutes or complements. We focus on estimating the demand for one of the most important amenities -- public school quality. We use transaction prices from the housing market and the hedonic house price model to generate the implicit prices of community amenities. The median voter model is used to estimate the income and price elasticities of demand for educational quality. We find that the own price elasticity of demand for schooling is about -0.5 and the income elasticity of demand is about 0.5. New findings include estimates of a set of cross-price elasticities of demand for school quality. We find that a community’s income level, percentage white households, and level of public safety are substitutes for school quality.

Affordability and the Value of Seller Financing

The typical methodology in valuing seller financing consists of calculating a discount -- the present value of the after-tax interest savings due to the creative financing --and including this variable, along with other characteristics of the purchased house, in an hedonic price equation explaining the house price actually paid. Resulting from this equation is a set of marginal prices corresponding to each characteristic of the house, including the quantity (discount) of creative finance accompanying the house. The central question usually addressed is whether the discount is fully capitalized in the value of the house -- whether the price of creative finance is unity. In our view, one should not ask what the price of creative finance is because this price, like that of other housing attributes, likely depends upon supply and demand conditions. We develop and estimate a model incorporating this dependency.

House Price Changes and Idiosyncratic Risk: The Impact of Property Characteristics

While the average change in house prices is related to changes in fundamentals or perhaps market-wide bubbles, not all houses in a market appreciate at the same rate.The primary focus of our study is to investigate the reasons for these variations in price changes among houses within a market. We draw on two theories for guidance, one related to the optimal search strategy for sellers of atypical dwellings and the other focusing on the bargaining process between a seller and potential buyers. We hypothesize that houses will appreciate at different rates depending on the characteristics of the property and the change in the strength of the housing market. These hypotheses are supported using data from three New Zealand housing markets.Atypicality; Bargaining; Housing Risk; House Price Appreciation; Search Models

Borrowing Constraints and the Tenure Choice of Young Households

In this paper we analyze the factors that affect the tenure choice of young adults, highlighting the impact of mortgage lender imposed borrowing constraints. The data set is a panel of youth age 20-33 for the years 1985-90. Our methods differ from most prior studies in many ways including consideration of possible sample selection bias, a richer model of the stochastic error structure, better measurement of which households are bound by borrowing constraints, and a fuller consideration of the endogeneity of wealth and income. Once all changes are implemented, we find ownership tendencies to be quite sensitive to economic variables. Specifically, potential earnings, the relative cost of owning a home, and especially borrowing constraints affect the tendency to own a home. In our sample of youth, 37% of households are constrained even after choosing their loan-to-value ratio to minimize the impact of the separate wealth and income requirements. The constraints reduce the probability of ownership of these households by 10 to 20 percentage points (a third to a half) depending on the particular characteristics of the household.

Expected Home Ownership and Real Wealth Accumulation of Youth

This paper describes the real wealth accumulation of American youth and relates this behavior to variations in real constant-quality house prices in their localities of residence. We argue that increases in the real constant-quality house price have two offsetting effects on wealth. First, the greater the local constant-quality price of housing, the greater the wealth needed to meet the lender imposed down payment constraint if housing demand is price inelastic. However, increased real constant-quality house price reduces the likelihood of home ownership and thus the desire the accumulate wealth needed for a down payment. Using a panel data set for youth age 20-33 for the years 1985 through 1990 we find that the combined direct and indirect impact of variations in real constant-quality house price on wealth is modest for changes near the average real house price, but youths' wealth declines substantially in areas with high real house price.

Homeownership Rates of Married Couples: An Econometric Investigation

Ownership patterns for young (under 45) married couples are striking in two respects. First, ownership rates rise dramatically with age: couples 35- 44 consistently have ownership rates nearly 50 percentage points higher than couples under 25. Second, half of the sharp ownership gains of young married couples in the 1970s were reversed in the first half of the 1980s. These patterns do not hold either for single or other households or for married couples over 44. To increase understanding of this variability by age and over time, we analyze the tenure behavior of young married couples using aggregate income/age-class data from the 1973-83 Annual (American) Housing Surveys (AHS). The income of a household affects its tenure choice both directly (the taste for ownership rises with income) and indirectly (the cost of owning declines as income rises owing to the greater value of investment in a nontaxed asset for investors in higher tax brackets). Age affects tenure choice because older households have higher incomes, are less mobile (annual-equivalent transactions costs are lower), have more wealth (portfolio diversification for owner- occupiers is easier), and have more certain income (and are thus more willing to commit to ownership). Price and income elasticities for tenure choice are computed, the rise in ownership rates between 1973 and 1979 and the subsequent decline are interpreted, and an impact of the Tax Reform Act of 1986 is predicted.

Endogenous Mortgage Choice, Borrowing Constraints and the Tenure Decision

Earlier research has shown that lender income and wealth constraint ratios discourage homeownership. This empirical research has been based on home purchasers using an 80 percent loan-to-value (LTV) fixed-rate conventional loan. Employing the same assumption, we find that the constraints lowered the ownership rate of our 1919 young home purchasers by about 20 percentage points. However, households are not restricted to putting 20 percent down and choosing a fixed- rate loan. When we allow households to select the optimal LTV and mortgage type (adjustable or fixed-rate with Federal Housing Administration (FHA) or conventional insurance), the percentage of our sample that is credit constrained declines from 71 to 49. Moreover, the measured impact on the homeownership rate of the constraints falls to only 4 percentage points. Further, FHA loans are estimated to increase homeownership by only 0.1 to 0.2 percentage points.

Dynamic house prices and trading volumes across quality tiers and upward mobility

We argue that shocks to a housing market are transmitted through the hierarchy of quality tiers within a housing market. The result is the prediction of waves of house price changes accompanied by changes in transaction volume. Our study is related to existing models of spatial ripple effects across housing markets. The data are from the Hong Kong housing market. The findings from Granger causality tests strongly support the argument that ripple or domino effects within a single housing market occur in response to external shocks

Homeownership Gaps Among Low-Income and Minority Households

Although homeownership rates currently stand at historically high levels for all segments of the U.S. population, large gaps in homeownership rates remain when comparing various groups of the population. As of the third quarter of 2006, the non-Hispanic White (hereafter, White) homeownership rate was 76 percent while African-American and Hispanic homeownership rates were below 50 percent and the Asian homeownership rate was 60 percent. The homeownership gap between African-American and White households was larger in 2006 than it was in 1990, while the homeownership gap between Hispanics and Whites was only slightly smaller in 2006 than it was in 1990. Households with very low incomes had a homeownership rate that was 37 percentage points below the rate for high-income households. These gaps have changed little over the past 50 years. The primary goal of this study is to synthesize what is known about the determinants of gaps in homeownership rates by income status and racial and ethnic status. We first present a conceptual framework for analyzing the determinants of homeownership. We then review the literature that identifies the relative importance of various contributing factors to observed homeownership gaps, separating the factors into those that are observed and those that are part of an unexplained residual that represents unmeasured factors such as discrimination, lack of information about the homebuying and mortgage financing processes, and omitted socioeconomic variables