Quantifying the Decision to Become a First-Time Home Buyer

Abstract

Becoming a first-time homebuyer is quantified in two stages using household data. A renter demand curve is estimated to calculate the consumer surplus gain from moving into housing consumption equilibrium. Probit is used to estimate the probability of becoming a first-time homebuyer. The model suggests that overcoming the transactions cost of buying, and the gain from housing consumption equilibrium are important to the decision. Renting is explained by current housing demand through income and family size. Buying for the first time is explained by factors which reduce transactions costs, such as assets, marital status, and education. Disequilibrium in rental housing consumption is also important. The results further suggest that permanent income is not important to the decision.