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4. To Buy or Not to Buy? Understanding Tenure Preferences and the Decisionmaking Processes of Lower-Income Households
- Brookings Institution Press
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143 4 To Buy or Not to Buy? Understanding Tenure Preferences and the Decisionmaking Processes of Lower-Income Households carolina reid Iam sitting on the lawn of a modest single-family home in Albuquerque, helping a toddler put together her Mega Bloks® as I talk with her mother, a twenty-four-year-old Latina who has lived in the United States her entire life. We are taking advantage of an unusually warm February day, and the interview is going better now that we are at her home rather than sitting in the nearby public library. Earlier in the conversation, I felt as if she were giving me carefully considered answers to my questions about her home search process (“We did a budget to see what we could afford”), but now she is allowing more emotion to come through in her responses. She points to a row of rooftops just visible over her neighbor’s backyard—a recently built subdivision that is filled with two-story houses, their newness standing in stark contrast to the older houses in the neighborhood where we are now sitting. “If we could only afford to live there,” she says. “That’s what I want for my daughter. A house that shows we’re providing for her in the right way. That we’ve made it. So she’s not a second-class citizen.” She then goes on to explain how she is willing to forgo her careful budget—in addition to increasing the number of hours she works to save a bit more—in order to buy one of those houses. This one interview encapsulates the challenges of understanding consumer decisions in the homeownership market. It is never simply about an economic utility function. Certainly, buying a home is a financial decision, and every single person I interviewed recognized (and valued) the investment potential of owning a home. The recent housing boom and bust, coupled with the foreclosure crisis, 04-2564-0 ch4.indd 143 5/14/14 11:08 AM 144 carolina reid was at the forefront of everyone’s mind, and most of the families were watching the real estate reports with keen interest. Were prices going up? Were interest rates going to stay low? Was this the right time to buy? But the interviews also revealed much more complicated motivations for buying a home, highlighting the extent to which a whole host of other nonquantifiable factors—including optimism, identity, and culture—influence consumer decisionmaking processes. These nonquantifiable factors are not negligible, and they have material effects, not only on the financial well-being and vulnerability of the households themselves but also on which neighborhoods benefit from owner-occupied investment. In this chapter I report on the findings from four focus groups and twenty individual interviews designed to examine how households make decisions about buying a home. The focus groups and interviews were conducted in Oakland, California, and Albuquerque, New Mexico, between December 2012 and February 2013. All of the respondents—forty-three in total—were members of lowerincome households (earning less than the median for their respective metropolitan statistical areas), with children, of working age, and who were in the process of buying a house or had bought a home within the last six months. For all of them, this was their first home-buying experience, and all but three were going to be the first generation in their families to own property in the United States. As a result, the data provide rich insights into the processes that influence the homeownership decisions of lower-income, first-time homebuyers. This chapter summarizes the findings related to three key aspects of the decisionmaking process: —the factors that motivate the shift from renting to owning, —the heuristics borrowers use to make financial decisions about their housing choices, and —the prevalence of “optimism bias” in household decisions about buying a home, and how that optimism stands in stark contrast to lower-income homeowners ’ vulnerability in the labor market. The chapter begins with a brief overview of the literature that forms the background for this study, including studies on tenure choice, residential location, consumer decisionmaking, and behavioral economics. It then provides background on the qualitative data as well as some brief statistics that highlight the different contexts of the Oakland and Albuquerque housing markets. The third section presents the findings from the qualitative data, focusing on the three key aspects described above. The final section discusses the potential implications of this study for public policy and...