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HOUSING DECISION WITH DIVORCE RISK
Author(s) -
Fischer Marcel,
Khorunzhitalia
Publication year - 2019
Publication title -
international economic review
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 2.658
H-Index - 86
eISSN - 1468-2354
pISSN - 0020-6598
DOI - 10.1111/iere.12385
Subject(s) - precautionary savings , asset (computer security) , economics , transaction cost , database transaction , business , labour economics , actuarial science , monetary economics , microeconomics , market liquidity , programming language , computer security , computer science
We build a life‐cycle model of housing decisions under divorce risk that predicts that the recent increase in divorce rates leads to reduced homeownership rates. The risk of a divorce triggers a precautionary‐savings motive. However, this motive is weaker when individuals can invest in owner‐occupied homes because homeowners' higher savings partially substitute for precautionary savings. When young, the larger asset accumulation due to divorce‐risk‐induced precautionary savings enables households to buy homes earlier, whereas the presence of transaction costs leads to reduced homeownership for middle‐aged and older households when divorce risk goes up.