Volume 3 Number 6
June 2006

In this Issue
Factors in Achieving and Retaining Homeownership
Performance Measurement Enhances Community Development
Mark-to-Market Preserves Affordable Rental Housing
Optimized Tax Credit Allocation Can Serve Those in Need
In the next issue of ResearchWorks

Factors in Achieving and Retaining Homeownership

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What is the influence of factors such as household formation, levels of wealth and income, and the availability of downpayment assistance on the likelihood of becoming a homeowner? Does owning a home make a significant difference to a household’s bottom line, even if homeowners cash out some of the value through home equity loans? How secure are first-time homebuyers in their tenure? How do we account for the disparities in homeownership rates — 69 percent overall in the fourth quarter of 2005, but just 50 percent for Hispanics and 48 percent for blacks? These are just a few of the questions addressed by five recently released HUD reports.

The Influence of Household Formation on Homeownership Rates Across Time and Race (www.huduser.org/publications/pdf/TheInfluenceOfHousehold FormationOnHomeownershipRatesAcrossTimeAndRace.pdf). Every adult (ages 21 to 64) has a recurring opportunity to decide whether to form and head a household (household formation behavior), and if they do so, to decide whether to rent or own. This project evaluates the degree to which age- or race-related variance in these decisions might account for changes in the overall homeownership rate over time. Findings suggest that changes in household formation and homeownership are not independent of one another. Household formation behavior, however, seemed to have only a modest effect on the aggregate homeownership rate. In contrast to the well-publicized rise in aggregate homeownership rate for the entire population, age-specific homeownership rates from 1970 to 2000 remained largely unchanged. Rather, the increase in the aggregate homeownership rate is largely attributable to the aging of the population. Minority homeownership also increases with age, but more slowly than for white households, and never to the same degree.

The Importance of Wealth and Income in the Transition to Homeownership (www.huduser.org/publications/pdf/TheImportanceOfWealthAndIncome.pdf). This study finds that both household income and wealth (savings, investments) influence the transition to homeownership. For minorities, wealth is a stronger predictor. All else being equal, minorities need significantly higher levels of wealth to achieve the same probability of becoming homeowners as white households. Some evidence suggests, however, that the importance of wealth in predicting homeownership has declined over time, perhaps reflecting the development of low-downpayment mortgage options in the 1990s.

The Potential of Downpayment Assistance for Increasing Homeownership Among Minority and Low-Income Households (www.huduser.org/Publications/pdf/potentialdownpaymentassistance.pdf). This study tests the potential for downpayment assistance programs, such as those in the American Dream Downpayment Act of 2003, to increase homeownership, both overall and among low-income and minority households. Liquid financial assets (amounts held in savings or checking accounts, CDs, mutual funds) were significant predictors of homeownership, and surprisingly, this is especially true for households with the least amount of savings - from $0 to $1,000.

The study tests the effects of different levels of downpayment assistance in boosting homeownership and suggests that policies to support savings efforts by low-income households might be effective. "A little savings can go a long way toward enabling homeownership," the study concludes.

The Impact of House Price Appreciation on Portfolio Composition and Savings (www.huduser.org/publications/pdf/housepriceimpact.pdf). This research explores the question of whether rising home values really help homeowners accumulate wealth, given the fact that many homeowners take out part of the value in the form of home equity loans to spend on goods and services. The study finds that homeowners take on up to 15 cents of additional debt per each dollar of house price appreciation. On the other hand, they typically save at least 80 percent of their home price appreciation. The study lends support to the idea that homeownership increases the wealth of households, at least to the extent that inflation-adjusted housing prices tend to rise over time.

The Growth of Earnings of Low-Income Households and the Sensitivity of Their Homeownership Choices to Economic and Socio-Demographic Shocks (www.huduser.org/Publications/pdf/EarningsOfLow-IncomeHouseholds.pdf). This study looks at low-income, first-time home buyers to see how long they remain homeowners, and what factors are associated with reverting to being renters again. The study finds that household earnings among new homeowners tend to rise relatively rapidly, especially for low-income homeowners. Their earnings typically increased by up to 13 percent, tending to make homeownership sustainable.

Terminations of homeownership peak around the third year, when seven percent of those who made it that far lose their tenure. Falling earnings, declining house values, higher interest rates, and higher local unemployment rates all increase the likelihood of failure. Being (and remaining) married, greater education, smaller family size, and being older all increase the likelihood of remaining a homeowner. Black households had a much greater risk of losing homeownership status, even after controlling for a large number of economic and demographic variables.

These reports are available for downloading at the websites given above, or they can be ordered for a nominal fee from the HUD USER Web Store by calling 800.245.2691.