The Importance of Wealth and Income in the Transition to Homeownership

Zhu Xiao Di

Xiaodong Liu

This article reflects the views of the authors and does not necessarily reflect the views of the U.S. Department of Housing and Urban Development.

Although most studies examining the importance of wealth and income constraints in attaining homeownership employ a simulation methodology, this article uses Panel Study of Income Dynamics data to investigate the actual probability of becoming a homeowner during a 15-year period. The findings confirm that both household wealth and income have significant importance to the transition to homeownership, with wealth as a more important predictor of whether minorities become homeowners. The use of longitudinal data and survival analysis also allow for examining changes over time in the relative importance of wealth and income in predicting homeownership. Although some evidence is found to suggest that the importance of wealth in predicting homeownership has declined over time, we do not find any support for a reduction in the importance of income, despite the fact that mortgage product innovation has increased the allowable ratios of debt to income. It is possible, however, that such mortgage market innovation has had greater impact on the value of homes purchased.