Monetary Policy and the Homeownership Rate

How does monetary policy affect the homeownership rate? A monetary contraction may have contrasting
effects on ownership due to rising interest rates, falling in-comes, and lower house prices. To investigate,
we build a heterogeneous household life-cycle model with housing tenure decisions, mortgage finance,
and an exogenous stochastic process to capture the macroeconomic effects of monetary policy. Following
a contractionary shock, homeownership initially falls due to rising mortgage rates, but rises over the
medium term given falling house prices. We also show that differences in mortgage credit conditions,
mortgage flexibility, and household expectations formation can amplify homeownership dynamics following
a shock