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Home Ownership, Household Leverage and Hyperbolic Discounting
Author(s) -
Ghent Andra
Publication year - 2015
Publication title -
real estate economics
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 1.064
H-Index - 61
eISSN - 1540-6229
pISSN - 1080-8620
DOI - 10.1111/1540-6229.12090
Subject(s) - payment , leverage (statistics) , portfolio , hyperbolic discounting , discounting , economics , welfare , microeconomics , monetary economics , business , financial economics , finance , market economy , machine learning , computer science
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.