Low-Income Homeownership: Examining the Unexamined Goal

Chapter 2. Anatomy of the Low-Income Homeownership Boom in the 1990s

Despite an unprecedented boom in homeownership that added 7 million net owners between 1994 and 1999 and drove the homeownership rate nearly 3 percentage points higher, to 66.8 percent, relatively little is known about where people have been buying homes and the types of homes they have been buying. Analysis of the 1990s boom has focused principally on describing who is buying—by income, racial, ethnic, and family characteristics—not on where and what homes they are buying (Bostic and Surette, 2000; Wachter, 1999; Masnick, 1998). The concentration of the growth in homeowners among minorities has been especially striking. Though in 1993 minority households accounted for only 15 percent of owners, over the next five years they accounted for 41 percent of net growth in owners. Although the number of low-income (those earning less than 80 percent of the area median income) non-Hispanic white owners actually declined by 225,000 over the period, the number of low-income minority owners rose by more than 800,000 and accounted for nearly 11 percent of the net growth in owners. This shift in the racial and ethnic composition of low-income homeowners reflects the faster household growth of minorities through immigration and the younger age distribution of minorities. Fewer low-income non-Hispanic whites became owners than were lost through shifts of tenure, changes in 15 Anatomy of the Low-Income Homeownership Boom in the 1990s eric s. belsky and mark duda 2 file02 ch1-3 pp1-104.qxd 7/5/2002 2:10 PM Page 15 income, and death and institutionalization of elderly owners. Minorities accounted for a growing share of first-time buyers, as a larger proportion of a faster-growing population reached their first-time buying years. Indeed, minority first-time buyers as a share of all first-time buyers rose from 19.1 percent in 1993 to 30 percent in 1999. As a consequence, homeownership rates of low-income and minority households have been rising more rapidly than for others. The share of mortgage loans made to both low-income and minority households also surged between 1993 and 1999. While the number of loans to high-income buyers (those earning 120 percent or more of the area median income) grew by 52 percent, loans to low-income home buyers surged by 94 percent. Growth in loans to white home buyers was a more modest 42 percent; much more dramatic was the 98 percent growth in loans to black buyers and the 125 percent growth in loans to Hispanic buyers. Interest is mounting in understanding where low-income home buyers have been purchasing, as businesses strive to serve these buyers and policymakers consider the social and economic implications of the recent surge in low-income homeownership. The social and economic implications of their tenure choices are significant because owners tend to remain longer in the same home and therefore make a longer-term commitment to an area. Indeed, although half of renters move in three years or less, half of owners stay in their homes for ten years or more.1 In addition, investment in homes can result in significant returns to owners, significant lost opportunities to invest funds in other assets, or outright losses of principal and credit reputation. The spatial pattern of home purchases by low-income buyers is important because it determines their access to education and other public goods as well as to jobs and social networks. Access to education, jobs, and social capital is, in turn, key to economic and social mobility (Temkin and Rohe, 1998; DiPasquale and Glaeser, 1999), and evidence suggests that the children of homeowners do better on a variety of achievement indicators (Boehm and Gordon, 1999; Green and White, 1997). Location is also important because house price appreciation varies spatially and therefore plays a central role in determining the financial returns to homeownership (Goetzmann and Spiegel, 1997; Case and Mayer, 1995; Case and Marynchenko in this volume; Smith and Ho, 1996; Li and Rosenblatt, 1997). As a result, some scholars have questioned whether moves by low-income and minority home buyers herald an improvement in their opportunity set—a move up as well as out (Stuart, 2000). Answering this question requires detailed information about the locations to which low-income and minority buyers are 16 homeownership in the 1990s 1. More than 50 percent of renters and owners had been in their homes for three and ten years, respectively, according to both the 1999 and 1997 American...