How Housing Supply Constraints Shape First-Time Homebuyer Responses to COVID-19 Shock (Job Market Paper)

Abstract

I examine how COVID 19 shock affected first-time homebuyers across markets with differing housing supply constraints. With an event study empirical design, I find that rents have increased more rapidly than the cost of homeownership for individuals deciding between renting and buying a home in 2020, temporarily strengthening incentives for renters to transition into homeownership in high-constrained markets. During this period, the share of first-time-buyer mortgages grew more in highly constrained areas than in less constrained ones and returned to pre-pandemic levels within three years of the post period. Additional evidence indicates that first-time buyers took on greater leverage (higher LTVs) and that, the composition may have shifted towards buyers with less liquid assets in these highly constrained locations.