Academic journal article Economic Perspectives

Trends in Homeownership: Race, Demographics, and Income

Academic journal article Economic Perspectives

Trends in Homeownership: Race, Demographics, and Income

Article excerpt

Introduction and summary

For most Americans, a home is more than shelter. It is also their most valuable asset and an important savings vehicle.(1) Moreover, a high rate of homeownership is often thought to create better citizens, enhance the stability of communities, increase the value of other property, and even improve the performance of children in school.(2) Perhaps for these reasons, a wide array of public policies have been undertaken to encourage homeownership. These include favorable treatment of homeownership under the tax code, the creation of the thrift industry, the establishment of the Federal Housing Administration's (FHA) lending programs, and the chartering of government-sponsored enterprises to facilitate mortgage securitization.

The U.S. homeownership rate, as shown in figure 1, has recently reached new highs. However, the increase during the last two years follows two decades of stagnant or falling homeownership rates, which were in sharp contrast to the previous 30 years during which the U.S. homeownership rate increased by over 20 percentage points. The lack of growth in homeownership after the mid-1970s was taken by some analysts and policymakers to imply the need for down payment assistance programs, lower down payments for FHA mortgages, and looser underwriting standards for the secondary mortgage market, among other policies.(3) Similarly, the recent jump in homeownership rates might be taken as evidence that certain housing policies are beginning to have a positive effect.

Public policy concern has been especially great over the large and, until recently, growing gap between white and black homeownership rates. As shown in table 1, while the overall homeownership rate declined by only 0.8 percentage points between 1977 and 1995, the black homeownership rate fell by 2.6 percentage points to 40.7 percent.(4) In contrast, the white homeownership rate actually increased by 0.4 percentage points to 67.9 percent, implying a 1995 gap of 27.2 percentage points. Although that gap shrunk by nearly 3 percentage points from 1995 to 1997 as black homeownership grew a significant 3.5 points, the homeownership rate for blacks remains more than 23 percentage points below that for whites.

Policymakers are concerned that some or all of the gap between white and black homeownership rates may be due to discriminatory "steering" by real estate agents or to discriminatory lending practices.(5) Concern over possible discrimination has motivated the passage of legislation such as the Fair Housing Act, the Equal Credit Opportunity Act, the Community Reinvestment Act (CRA), and the Home Mortgage Disclosure Act. Though these laws have been in place in some form for many years, one might argue that recent amendments and stepped-up enforcement efforts might have increased their impact in the last few years.(6) Thus, one might argue that the increased effectiveness of CRA and fair lending laws is behind the recent homeownership gains of black households and the drop in the white-black homeownership gap.

However, it is dangerous to draw conclusions on the effectiveness of policy from trends in raw homeownership rates. Many major demographic and economic trends unrelated to narrowly focused housing policies significantly affect the homeownership rate. In particular, forces such as the aging of the baby boom generation, the decline in marriage rates, and the growth and distribution of real incomes can cause the homeownership rate to rise or fall independently of policymakers' actions. Thus, trends in overall homeownership rates or the white-black homeownership gap that are due to major economic and demographic trends may be mistakenly interpreted as reflecting the consequences of narrow housing policy choices.

In this article, we use the Census Bureau's March Current Population Survey (CPS) data from 1977 to 1997 to look at homeownership trends within more narrowly defined groups that may be free of compositional shifts due to changing demographic and income trends. …

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