Homeownership: Paradigm Shift?

Did the Great Recession and the collapse of the housing market scare away potential home buyers? A study by the Federal Reserve Bank of Boston suggests that younger people--but not older--may see the Great Recession as a regime change and are adjusting their attitudes toward homeownership accordingly.

By adding questions to the Michigan Survey of Consumers in 2011, the authors of the study looked at attitudes toward homeownership by demographic characteristic and zip code to determine whether residents of areas most affected by the bursting of the housing bubble are more wary of homeownership than those who live in areas less affected. Two important findings emerge from the study: only those personally affected by the housing crash (or who knew someone who was) have doubts about the financial soundness of buying a home--and only if they are younger than age 58.

Why did the housing crash freak out younger generations more than older adults? Because younger adults, suggest the authors, can imagine a paradigm shift occurring in the housing market. "In terms of the striking age differential," the authors note, "one possibility is that relatively younger respondents were indeed more malleable in terms of their outlook, and hence they internalized the sharp drop in housing prices as a regime change. In the new perceived regime, housing is a risky investment and thus (relatively) to be eschewed."

Source: Federal Reserve Bank of Boston, Shifting Confidence in Homeownership: The Great Recession