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Study Answers Questions on the Longer-Term Importance of Income and Wealth in the Transition to Homeownership

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The U.S. Department of Housing and Urban Development
recently published a study seeking answers to important
questions on how income and wealth typically affect the
transition to homeownership over longer periods. The
study uses both longitudinal data and survival analysis
to answer two questions not previously addressed in the
literature: Has there been any change in the relative
importance of wealth and income in the transition to
homeownership over time? Do income and wealth have
similar effects on whites and minorities over longer
periods? The complete study, "The Importance of Wealth
and Income in the Transition to Homeownership," is
available as a free download at
https://www.huduser.gov/portal/publications/HOMEOWN/ImportanceWealthNIncomeTrans.html

The study finds that, over time, both household income
and wealth are important factors influencing the
transition to homeownership. "For minorities," it notes,
"wealth is a more important predictor of the transition
to homeownership, with significantly higher levels of
wealth needed to achieve the same probability of
homeownership as white households." It further states
that "Some evidence is found to suggest that the
importance of wealth in predicting homeownership has
declined over time. . . [providing] some support for the
view that the proliferation of mortgage products allowing
for low downpayments in the late 1990s may have
contributed to a reduction in the importance of wealth
for achieving homeownership during the 1994 to 1999
period."

Although these new mortgage products have increased the
allowable debt-to-income ratios for prospective
homebuyers, the study does not find any reduction in the
importance of income as a qualifier for homeownership.
The results indicate that relaxed downpayments have
played a more important role in increasing homeownership
opportunities than have changes in allowable debt ratios.

The study's most significant contribution to the
literature is its use of both longitudinal data and
survival analysis to examine changes over time in the
relative importance of income and wealth in predicting
homeownership. It is the first study to examine the
probability of becoming a homeowner during a period of 15
years; its longitudinal data are from the Panel Survey of
Income Dynamics for the period from 1984 through 1999.
The survival analysis follows all renters included in the
1984 data who remained heads of households in 1989, 1994,
and 1999 to see whether and when they achieved the
transition to homeownership.

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