A new Federal Reserve Bank of Boston's study published in the Journal of Urban Economics reveals that home prices may affect future income of children, reports The Wall Street Journal.
For homeowner and parents with a 17-year-old, "a 1% rise in home price that year resulted in about 0.9% higher annual income for the child later in life."
On the other hand, for home renting parents with a 17-year-old, "a 1% rise in home price that year resulted in 1.5% lower annual income for the child."
Researchers measured average income of 900 people between 2005 to 2007 from data provided by the University of Michigan.The proponents of the study also matched the sample to their parents. Then, they obtained 1979 to 1999 data from the Federal Housing Finance Agency to compute for home prices changes when the individuals were 17 years old, the Wall Street Journam adds.
Pertinent Findings of the Federal Reserve Study
1. Home prices have different effects in different points of childhood.
Dr. Luengo-Prado, a researcher of the study, told WSJ that "At age 13, rising house prices affect everyone the same. When house prices are doing well, different localities can collect more taxes and the additional tax revenue benefits everyone within the school district, both homeowners and renters. At age 21, we don't really see an effect. But house prices at age 17 really affect your decision to go to college."
2. Homeowners have advantage over home renters when home prices increase, affecting their 17-year-old's education and thus, affecting their children's income.
Dr. Cooper, another proponent of the study, explained to WSJ: "For renters it's really a trade-off between saving in a rising-cost environment and financing a kid's higher education. Increased costs lead to less investment [in education] relative to owners, who can use their house as collateral to finance their kids' education."
Based from the study, this is another challenge directed to renters who have children. This new study might further be considered by parents as a guide to decide on their timeline to homeownership path.
In Zillow's study, there's a breakeven horizon renters should consider that may help them decide when to buy a home. Zillow notes that a breakeven horizon point is the time when the accumulated costs of renting go above the cost of buying the home in the first place. Nationally, it is 2.1 years based on the 2014 Q1 data from the study.
Thus, just to be safe and to prioritize their children's future, renters may opt to own a home before one of their children turns 17, even if it comes before the breakeven horizon point for the area they are staying.
Renters may have valid reasons for not buying homes, as reported here on RealtyToday. Just note that there are some housing programs that low earning renters may tap to be able to afford decent homes in some cities or boroughs such as Manhattan, as reported on the New York Times.
However, if some circumstances could not be controlled, the important part is to know and to do what's best for the whole family.
