The Missing Home Buyers: Regional Heterogeneity and Credit Contractions - Pierre Mabille
Speaker : Pierre Mabille
This paper studies how delayed home ownership from young buyers affects the transmission of shocks to housing markets. Using a panel of U.S. metro areas, I show that mortgage originations to young buyers have decreased more in regions with higher house prices over the past 15 years, despite credit standards changing mostly nationally. I develop and calibrate a regional business cycle model of the cross-section of housing markets consistent with these facts. Young buyers have more debt, and credit constraints bind more in high-price regions. Therefore, an aggregate tightening of loan-to-value and payment-to-income requirements generates heterogeneous local responses in home ownership and prices. This mechanism explains 86% of the cross-sectional differences in originations and 50% of the differences in house price declines in 2007-12. Regional heterogeneity dampens the effect of subsidies like the First-Time Homebuyer Credit, because they fail to stimulate high-price regions which suffer the largest busts. Credit relaxation policies achieve larger stimulus and welfare gains.