Market Conditions and Housing Choices: A Comparison of Homeownership Across Three Decades

Abstract

This paper uses information on out-of-pocket housing cost and house price appreciation along with the geo-coded version of the Panel Study of Income Dynamics to consider the differences in the impact of these and other variables on the tenure choices of sample households across three time periods, the 1970s, the 1980s, and the 1990s. Specifically, an extended continuous time probability model is used to examine household’s transitions from renting to owning, and subsequent possible transitions either back to rental tenure or to another owned home during our three observation periods. Coefficient estimates show that financial variables such as house price appreciation and out-of-pocket housing cost play an important role in determining all the transitions. In addition, the analysis demonstrates the interesting result that the cumulative likelihoods of homeownership derived from the model are consistently lower than the probabilities of an initial transition to homeownership from rental tenure during the observation period. Finally, the magnitude, and timing of the impact on homeownership of a policy experiment that eliminates the mortgage interest deduction are shown to differ substantially across the three decades.