The Federal Reserve Bank of Boston has released a Public Policy Discussion Paper by two of its economists titled Shifting Confidence in Homeownership: The Great Recession. The paper, researched and written by economist Anat Bracha and senior economist Julian C. Jamison sought answers to whether American attitudes toward homeownership had been affected by the sharp drop in home prices during the recession.
The study involved answers to several questions added to the monthly Michigan Survey of Consumers in July and August 2011. In particular, the 986 individual respondents were asked about attitudes toward renting versus buying a home, about commuting, and about how much a family should be willing to spend on a mortgage.
The responses were matched to data on housing prices and the extent of their decline and analyzed by sex, age, homeownership, and a number of other variables including whether or not the respondent had suffered directly from the effects of the housing downturn or merely knew of its effects from the news or other sources.
The authors matched answers from individuals to the decline in the housing price index in the zip codes where the respondents’ lived and analyzed them to determine if the decline affected attitudes toward buying versus renting a home, paying a mortgage, and commuting to work to reduce housing expenses.
They found that recent housing market conditions had little effect on individuals if their exposure to the housing downturn had come through information only such as newspaper or television stories as opposed to personal experience. Individuals who had not been impacted nor anyone in their close circle been impacted by foreclosure or lost large amounts of money on real estate also had no change in attitudes toward the financial soundness of homeownership or their willingness to undertake a commute to reduce housing expenses.
There was, however, a link between a decline in housing prices and the amount these “information only” respondents thought a family should spend on a mortgage.
Where respondents or a family member had been personally affected by the housing crisis there were changes in attitude but the affect varied by age group. The greater the drop in home prices in their location the less confident those under 58 years of age were in the soundness of buying a home. Those over that age, even with personal experience in the crisis, had more confidence in the wisdom of buying. Furthermore, this confidence grew with the decline in home prices in their location.
The authors conclude that, as those with full information about the recession but no direct negative experience with it did not experience a shift in attitude, it may point to a more general rule; information alone is not sufficient to change attitudes, only actual experience is. Furthermore, the crisis’s effects seem to be confined to attitudes toward buying a home and do not spill over into attitudes related to other homeowner decisions such as how much money one should spend or to commuting decisions.
That the decline had a negative effect primarily on younger person’s attitudes is consistent with the idea that older persons have a fixed set of beliefs and interpret the crisis as a temporary deviation from a known trend. Younger individuals and their lowered confidence would be consistent with the idea that their beliefs are still flexible and can change over time.