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Home Ownership, Household Leverage and Hyperbolic Discounting

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  • Andra Ghent

Abstract

type="main"> I examine tenure and mortgage choice in an equilibrium model in which households make decisions as if they discount hyperbolically rather than exponentially. Overall, hyperbolic discounting does not seem to explain the high rates of home ownership or portfolio concentration in housing in the data. I then study the choice between mortgages that require a substantial down payment and mortgages that require no down payment. Allowing households access to no-down-payment mortgages exacerbates rather than mitigates the undersaving of hyperbolic discounters. However, even when households discount hyperbolically, welfare is higher when households have access to no-down-payment mortgages.

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  • Andra Ghent, 2015. "Home Ownership, Household Leverage and Hyperbolic Discounting," Real Estate Economics, American Real Estate and Urban Economics Association, vol. 43(3), pages 750-781, September.
    • Handle: RePEc:bla:reesec:v:43:y:2015:i:3:p:750-781
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    3. Gathergood, John & Weber, Jörg, 2017. "Financial literacy, present bias and alternative mortgage products," Journal of Banking & Finance, Elsevier, vol. 78(C), pages 58-83.
    4. Molloy, Raven & Nathanson, Charles G. & Paciorek, Andrew, 2022. "Housing supply and affordability: Evidence from rents, housing consumption and household location," Journal of Urban Economics, Elsevier, vol. 129(C).
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    6. Takayuki Ogawa & Hiroaki Ohno, 2024. "Hyperbolic discounting and state‐dependent commitment," Economica, London School of Economics and Political Science, vol. 91(362), pages 414-445, April.
    7. Raven S. Molloy & Charles G. Nathanson & Andrew D. Paciorek, 2020. "Housing Supply and Affordability: Evidence from Rents, Housing Consumption and Household Location," Finance and Economics Discussion Series 2020-044, Board of Governors of the Federal Reserve System (U.S.).
    8. van Ooijen, Raun & van Rooij, Maarten C.J., 2016. "Mortgage risks, debt literacy and financial advice," Journal of Banking & Finance, Elsevier, vol. 72(C), pages 201-217.
    9. Malmendier, Ulrike M. & Botsch, Matthew J., 2020. "The Long Shadows of the Great Inflation: Evidence from Residential Mortgages," CEPR Discussion Papers 14934, C.E.P.R. Discussion Papers.

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