Down Payments and the Homeownership Dream: Not Such a Barrier After All?
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This paper uses a structural model to quantitatively evaluate whether and under what conditions loose credit constraints are essential to achieving a high homeownership rate. A dichotomy emerges between the short run and long run response to a moderate tightening of credit, with homeownership initially falling before gradually reverting to its original level. When consumption and housing are complements, this long-run stability is robust to larger credit shifts, though the short-run adjustment can be severe. These results suggest that policymakers may have more latitude than thought in pursuing other objectives (e.g. macroprudential stabilization) without harming long-run homeownership.