Homeownership and household life-cycle portfolio choice

In this paper, I developed a calibrated optimal dynamic asset allocation model with housing rental market, housing adjustment costs, mortgage collateral borrowing requirement, and try to study the relationship between homeownership and households' portfolio choice. The result showed that the homeownership is hump-shaped in ages, and the liquidity of housing has significant impact on optimal portfolio choice of households. Homeowners tend to be more risk averse in financial investment than renters who are not given a homeownership choice. Downpayment ratio crowds out the housing position at the early stage of life-cycle for saving more wealth to buy a house, and descends the stockholdings of young households because of illiquid home equity restrictions. With the increase of transaction cost on housing, a homeowner want to invest more in stock to acquire more benefit to pay for the increasing potential adjustment cost, and tend to hold their house for a longer period of time.