A Study on the Household Capability of Debt Payment between Homeowners and Renters

The purpose of this study is to assess households’ debt repayment capacity and potential default risk in relation to fluctuations in the residential housing market. We construct a Probability of Default (PD) measure and a Household Debt Repayment Index (HDRI) as proxies for individual households' financial risk exposure. We also identify a structural break in the residential housing market in May 2020. Based on this, we compare relative changes between 2018, representing an upmarket phase, and 2021, representing a downmarket phase in the residential housing market. To mitigate selection bias between homeowners and renters, we employ the Propensity Score Matching (PSM) method to match two individual groups with similar characteristics. Using this approach, we analyze the relative changes in key financial indicators, including the consumption rate, saving rate, and debt-to-asset ratio. This study not only examines variations in households' debt repayment capacity and exposure to default risk across different housing market phases, but also provides an in-depth analysis of the financial conditions of renters and homeowners, with particular attention to changes in consumption and saving behavior.