bostonfed.pdf

A new study by economists at the Boston Federal Reserve found that the roughly two-thirds of Americans who did not suffer personal loss from the housing crash and whose knowledge of the housing crisis comes from media coverage have not changed their views towards homeownership.

Significant Loss of confidence regarding homeownership is limited to younger members of the approximately one out of three individuals who suffered directly from the housing crisis through foreclosure or falling home values. Older Americans who suffered losses from the crisis generally retained their confidence in homeownership and would choose to buy over renting.

Approximately one-third of the study’s sample reported that either they or someone close to them actually lost a large amount of money in real estate during the crisis, that is, those with first- or second-hand experience of the housing crash rather than those who watched it from the sidelines .

The study, by economists Anat Bracha and Julian C. Jamison, found that people who in 2008 lived in ZIP codes that were hardest hit by the crash in housing prices-as compared to those who resided in areas that were least severely affected-are significantly more likely to be confident about owning a home if they are older (above 58 years old in our sample), but are significantly less likely to be confident about owning a home if they are younger.

“We argue that merely possessing information about an adverse event is not enough to change behavior-rather, something like direct experience is required to change an individual’s confidence in homeownership. This different response is because presumably almost everyone in the United States was exposed to multiple media headlines about what had happened to the housing markets in their neighborhood and around the country, and yet people who did not personally suffer a loss from the housing crash or know someone close to them who did, do not show a similar divergence in confidence,” the authors wrote in “Shifting Confidence in Homeownership: The Great Recession” published June 24.

However, the study found widespread erosion of support for buying a home as an investment. The study found that the majority of respondents think either that (1) owning a home is without a doubt better financially than renting a home, or that (2) owning a home is probably better financially. Nevertheless, there is some variation: about 20 percent answered either that the two options (renting and owning a home) are about the same, or that renting is better financially. Moreover, even the two most common answers, (1) and (2), differ on an important dimension-the confidence that people express in the assertion that buying a home is better financially.

Even widespread media reports did not change the views of younger or older Americans. Adults aged 58 years or under who had experience with the real estate crash are marginally less confident in the benefits of owning a home versus renting. However, the confidence in homeownership among those with secondary information only did not change. Their confidence in buying a home was unaffected by their geographical location, and the magnitude of the crash to which they were exposed had no effect on their outlook.

“We find that recent housing market conditions had little effect on individuals whose exposure to the crisis came through information only, such as media accounts. For individuals who were not foreclosed on, did not lose a substantial amount of money in real estate, and did not have anyone close to them who did, attitudes towards the financial soundness of buying as opposed to renting were unchanged by the magnitude of the house price decline in their area,” the authors concluded. “Information alone may not be sufficient to change attitudes; rather actual experience is necessary to change attitudes. Furthermore, the crisis’s effects seem to be confined to attitudes toward buying a home, and do not extend to attitudes related to other homeownership decisions, such as commuting or general risk aversion.”

Click on the link at the top of the story for a copy of the study.