After three decades of a level increase in homeownership, the national rate began rising around 1995. The rush for consumers to buy homes was fueled by an enormous surge in housing construction and affordable home prices. Surprising new research published by the Federal Reserve Bank of Atlanta concludes that the bulk of the increase was caused by innovations in the mortgage market. In particular, the explosion of “piggyback” or “combo” loans made it possible for people to make small or zero down payments. Young families with little savings flocked to those loans to buy their first homes. Many analysts have fingered easy lending as a contributor to the housing boom, but the Atlanta Fed paper may be the first to quantify its effect in a rigorous way. Using math-heavy econometric analysis, the authors conclude that the availability of new kinds of mortgages, mainly ones with low down payments, accounted for 56% to 70% of the decade long increase in the U.S. homeownership rate, while demographic changes accounted for only 16% to 31% of the effect.

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