Fed Study: Only Direct Experience with Housing Crisis Affects Homeownership Attitudes
The Federal Reserve Bank of Boston
has released a Public Policy Discussion Paper by two of its economists titled Shifting
Confidence in Homeownership: The Great
Recession. The paper, researched and
written by economist Anat Bracha and senior economist Julian C. Jamison sought
answers to whether American attitudes toward homeownership had been affected by
the sharp drop in home prices during the recession.
The study involved answers to
several questions added to the monthly Michigan Survey of Consumers in July and
August 2011. In particular, the 986
individual respondents were asked about attitudes toward renting versus buying
a home, about commuting, and about how much a family should be willing to spend
on a mortgage. The responses were
matched to data on housing prices and the extent of their decline and analyzed
by sex, age, homeownership, and a number of other variables including whether
or not the respondent had suffered directly from the effects of the housing
downturn or merely knew of its effects from the news or other sources.
The authors matched answers from individuals
to the decline in the housing price index in the zip codes where the
respondents' lived and analyzed them to determine if the decline affected attitudes
toward buying versus renting a home, paying a mortgage, and commuting to work
to reduce housing expenses.
They found that recent housing
market conditions had little effect on individuals if their exposure to the
housing downturn had come through information only such as newspaper or
television stories as opposed to personal experience. Individuals who had not been impacted nor
anyone in their close circle been impacted by foreclosure or lost large amounts
of money on real estate also had no change in attitudes toward the financial
soundness of homeownership or their willingness to undertake a commute to
reduce housing expenses. There was,
however, a link between a decline in housing prices and the amount these "information
only" respondents thought a family should spend on a mortgage.
Where respondents or a family member
had been personally affected by the housing crisis there were changes in
attitude but the affect varied by age group.
The greater the drop in home prices in their location the less confident
those under 58 years of age were in the soundness of buying a home. Those over that age, even with personal
experience in the crisis, had more confidence in the wisdom of buying. Furthermore, this confidence grew with the decline
in home prices in their location.
The authors conclude that, as those with
full information about the recession but no direct negative experience with it
did not experience a shift in attitude, it may point to a more general rule;
information alone is not sufficient to change attitudes, only actual experience
is. Furthermore, the crisis's effects
seem to be confined to attitudes toward buying a home and do not spill over
into attitudes related to other homeowner decisions such as how much money one
should spend or to commuting decisions.
That the decline had a negative
effect primarily on younger person's attitudes is consistent with the idea that
older persons have a fixed set of beliefs and interpret the crisis as a temporary
deviation from a known trend. Younger
individuals and their lowered confidence would be consistent with the idea that
their beliefs are still flexible and can change over time.