Description: Department Seminar: Tracy Turner (Assoc. Prof. Finance, ISU)

Location: 368A Heady Hall

Title: “The Housing Market Lottery: Impacts of Purchase Timing and Location on Net Worth”

Abstract: We examine variation in household wealth accumulation by homeownership status and local housing market cycles. Using the Panel Study of Income Dynamics household data and auxiliary data sources, we test whether homeownership generates greater wealth accumulation in supply constrained locations, compared to renter status in such locations or owning in places with elastic housing supply. Over the most recent twenty-year period, encompassing the housing boom, bust and post-2010 recovery, we find that the impacts of homeownership on long-run wealth accumulation varies greatly by location. Locations with the greatest twenty-year house price growth correlate with sizable long-run increases in household net worth. At the upper tails of the price growth distribution, we find an average marginal effect on future wealth of moving from renting to owning on the order of 250 to 300 thousand, a magnitude similar to the average marginal impact of stock ownership on future wealth. However, at the average, median or lower percentiles of the price growth distribution, we find no evidence of an impact of homeownership on long-run total net worth. To the extent that homeownership is driven by life cycle events rather than active investment choice, our findings suggest that wealth accumulated via homeownership is a lottery.

Contact Person: John Winters