Urbanity, Financial Crisis and the Timing of Homebuying Decisions by Young Households

Abstract

Large urban areas have a high appeal to young households, particularly highly educated ones, as they offer higher wages, more job opportunities and urban amenities. However, large urban areas are also characterized by higher rental rates and single-family home prices. We investigate the timing of homebuying decisions by young households (25 to 28 years) in large metropolitan (metro) areas compared to young households in other areas. Using the PSID database and Cox regression, we find that wealth, likelihood to move, being married, race and macro-economic variables affect the timing of homebuying decisions of young households irrespective of where they live. However, income is more important for the timing of homebuying decisions by young households in large metro areas than other areas and a college education is less important. Furthermore, large metro households are more likely to delay homeownership than households in other areas. In poor economic conditions such as the 2007 to 2009 financial crisis, mobility considerations are predominantly driving the timing of homebuying decisions by large metro households while income is most important for homebuying decisions of young households in other areas. Our results suggest that young homebuyers in large metro areas differ from those in other areas and that urbanity is important in understanding homebuyer behavior.

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Fig. 1

Notes

  1. 1.

    A household aged 25 in the year 2003 becomes 29 by the year 2007. So, there is no data overlapping between YHP and YHC.

  2. 2.

    Assets include 1) business assets, 2) money in checking or savings accounts, 3) stocks, 4) value of vehicles, 5) other savings (i.e., cash value in a life insurance policy, a valuable collection for investment purposes, or rights in a trust or estate that was not included previously), and 6) any money in private annuities or in individual retirement accounts.

  3. 3.

    From equation (5), for example, the hazard ratio on Income variable is exp.(0.24) = 1.27. Thus, the hazard rate is increased by 1.27–1 = 0.27 ≈ 0.24, which is coefficient value.

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Correspondence to Julia Freybote.

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Kim, D., Seo, Y. & Freybote, J. Urbanity, Financial Crisis and the Timing of Homebuying Decisions by Young Households. J Real Estate Finan Econ 62, 481–507 (2021). https://doi.org/10.1007/s11146-020-09759-4

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Keywords

  • Homeownership
  • First-time homebuyers
  • Intertemporal dynamics
  • Urban
  • Cox regression

JEL Classification

  • O18
  • R21
  • R31