In a new paper for the Center for Behavioral Economics Federal Reserve Bank of Boston, economists Anat Bracha and Julian C. Jamison, explore how the housing crisis and the Great Recession have affected Americans' attitudes toward home ownership.  They sifted through recent Michigan Survey of Consumers data, and found that direct experience matters quite a bit:

Our main results are as follows. People who lived (in 2008) in ZIP codes that were hardest hit by the crash in housing prices, as compared to those in areas that were least severely affected, are significantly more likely to be confident about owning a home if they are older (above 58 in our sample) but are significantly less likely to be confident about owning a home if they are younger. These results control for demographics, current absolute house price levels, and other factors, but importantly they are concentrated in the approximately one‐third of our sample who report that either they or someone close to them actually lost a large amount of money in real estate during the crisis. We argue that the latter result implies that mere information is not enough, and instead something like hands‐on experience is required to change confidence in home ownership. This is because presumably almost everyone was exposed to multiple media headlines about what had happened in their neighborhood and around the country, and yet they do not show a similar divergence in confidence.

In terms of the striking age differential, one possibility is that relatively younger respondents were indeed more malleable, and hence they internalized the sharp drop as a regime change. In the new perceived regime, housing is an insecure investment and thus (relatively) to be eschewed. Available evidence from economics and psychology further suggests that such a change is likely to be persistent. On the other hand, older respondents – whose models of the world are harder to alter – see the drop in house prices as a temporary dip in a stable long‐term upward trend, making it a particularly good time to purchase. Of course it is also possible that older consumers buy homes more for consumption and less for investment, although the wording of the question was explicitly designed to hone in on general beliefs and away from individual circumstances.

In their research, Bracha and Jamison also found that despite all the losses in real estate over the last four years, few Americans see renting as a desirable option:

Read Shifting Confidence in Home Ownership: The Great Recession here. 

(Hat tip Binyamin Applebaum, NYT)