Volume 3 Number 8
September 2006

In this Issue
Lean Production Techniques May Advance Factory-Built Housing
Examining Hispanic Homeownership
Homeowners: The Last Defense in Preventing Moisture Damage
When Low-Income and Minority Families Buy Their First Home

When Low-Income and Minority Families Buy Their First Home

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According to the American Housing Survey (AHS), first-time buyers make two out of every five home purchases. These buyers must make immediate - and often critical - decisions about the type of structure they want, the neighborhood in which they will live, and the cost burden they will assume. A recent HUD-sponsored study, The Homeownership Experience of Low-Income and Minority Families: A Review and Synthesis of the Literature, draws from seven biennial AHS surveys completed from 1991 to 2003 that reflect the choices made by new low-income homeowners (defined as those earning less than 80 percent of the area median income) and minority homeowners.

Type of Housing

Although the choice between manufactured or stick-built housing did not differ by the first-time homebuyers' race or ethnicity, low-income families invested more frequently in manufactured homes. A majority of low-income and minority buyers, however, chose single-family detached homes. The condition of these properties, which are typically smaller and older, was generally similar to that of other owner-occupied residences and far better than what these new owners might have experienced as renters.

Type of Neighborhood

Participants in the 2005 National Association of Realtors Profile of Home Buyers and Sellers Survey ranked neighborhood quality as the most important factor influencing the location of homes. Yet the AHS data show that, compared with higher income homeowners, low-income and minority buyers tend to choose neighborhoods that have more problems with blight and litter and are closer to commercial and industrial zones. Nevertheless, neighborhood conditions for low-income renters were comparatively worse, suggesting that these first-time buyers improved their surroundings through homeownership.

A majority of low-income and minority homebuyers choose single-family homes, according to recent American Housing Surveys.

Cost of Owning

Researchers observed a growing tendency among low- and moderate-income groups to assume a large debt burden for housing. Between 1991 and 2003, the proportion of low-income homebuyers who committed less than 30 percent of their income to housing fell, whereas the proportion spending 40 percent or more rose. By comparison, low-income renters paid close to 40 percent of their income for housing throughout the same period. The largest differences in cost burdens were among income groups. Minorities, especially Hispanics, also carried heavier housing debt.

The 1991 - 2003 AHS data also reflect decisions regarding interest rates, lenders, loan-to-value (LTV) ratios, and types and lengths of mortgages. In general, researchers found the following:

• The proportion of first-time homebuyers who paid high interest rates rose as household income levels dropped. Minorities were more likely than whites to pay higher interest rates. Average interest rates fell for all groups, but fell more for low-income buyers, suggesting that new affordable mortgage lending products may have made financing more accessible.
• Although low-income buyers were more likely to have high LTV ratios, the average LTV ratio differed little across income groups. Over time, loans with higher LTV ratios increased among all categories of first-time buyers, although minorities held a higher proportion of such loans than did whites.
• The proportion of homeowners with fixed-rate mortgages differed little across income or racial/ethnic groups.
• Low-income buyers tended to use shorter-term financing, possibly because a larger proportion invested in manufactured housing. Minorities used the lengthier 30-year mortgage more often than white buyers did.