Guest Editor's Introduction

Harold L. Bunce, William J. Reeder, U.S. Department of Housing and Urban Development

As with the articles in this issue, this introduction reflects the views of the authors and does not necessarily reflect the views of the U.S. Department of Housing and Urban Development.

This issue of Cityscape focuses on research on low-income and minority homeownership. Aided by economic expansion, historically low mortgage interest rates, and proactive efforts by industry and government, homeownership in America increased over the past decade to nearly 69 percent. Minority homeownership has also been increasing, but the homeownership rate for minorities remains significantly behind that for Whites. In the first quarter of 2007, 75.3 percent of Whites owned their home compared with only 51.3 percent of minorities, thus leaving a homeownership gap of 24.0 percentage points. Also worth noting is that households with a very low income had a homeownership rate that was 37 percentage points below the rate for high-income households.

The Bush administration has consistently held homeownership in high regard as an important policy issue. In 2002, President Bush put forth a challenge to the housing industry—from home builders and lenders to nonprofit organizations—to narrow the minority homeownership gap by working to create 5.5 million new minority homeowners by the end of this decade. Since the start of the President’s initiative in 2002, the nation has realized a net increase of more than 2.5 million minority homeowners.

Three-Pronged Strategy

In 2003, HUD’s Office of Policy Development and Research engaged in a three-pronged research strategy to increase its base of information about low-income and minority homeownership. This three-pronged approach is detailed as follows:

1. A first series of studies focused on identifying and understanding the major causes of the racial and income gaps in homeownership. This research confirmed that downpayment and closing cost constraints continue to be the single greatest obstacle to homeownership for many households and that efforts such as the American Dream Downpayment Initiative can help families overcome this hurdle.
2. A second series of studies focused on the homeownership experience of low-income and minority families over time. This research confirmed that low-income and minority households are making good initial choices in the homes they buy and that they are obtaining good-quality housing in decent neighborhoods. The study concluded that low-income and minority home-owners are as likely as others to reap the traditional benefits of homeownership. An important set of findings for understanding existing racial gaps in homeownership, however, concerned the sustainability of homeownership: after minorities become first-time homeowners, they are more likely than nonminorities to return to being renters. This finding highlighted the importance of counseling and other programs aimed at helping families maintain homeownership.
3. The current homeownership rate for Hispanics is only 50.1 percent, approximately 25 percentage points lower than that for Whites. Thus, a third series of research studies examined barriers that Hispanics face in obtaining homeownership. That research examined the trends in the homeownership gap between Hispanics and other groups; the nature and causes of this gap, with an emphasis on special problems faced by Hispanics in the home purchase and mortgage markets; and what is known about the effectiveness of programs designed to help Hispanics become homeowners.

In This Issue

This issue of Cityscape may serve as an important reference for all interested in understanding the barriers and homeownership gaps that minorities and low-income families face in the U.S. housing and mortgage markets and the efforts of both government and private-sector entities to reduce these barriers.

We begin this issue of Cityscape with “Homeownership Gaps Among Low-Income and Minority Households,” by Donald R. Haurin, Christopher E. Herbert, and Stuart S. Rosenthal. This article provides a synthesis of what is known about the determinants of gaps in homeownership rates by income, racial, and ethnic status. The concentration is on comparing non-Hispanic White ownership rates with those of African Americans, Hispanics, and Asians.

The next article, “Factors Affecting Hispanic Homeownership: A Review of the Literature,” by Alvaro Cortes, Christopher E. Herbert, Erin Wilson, and Elizabeth Clay, describes the demographic and socioeconomic characteristics of the U.S. Hispanic population and how these characteristics relate to the Hispanic homeownership gap. The article also identifies the main barriers to Hispanic homeownership, including both demographic and socioeconomic attributes of the Hispanic population and a variety of housing market factors, such as the supply of mortgage financing.

Continuing the theme of potential hurdles for minority homebuyers, Thomas P. Boehm and Alan Schlottmann contribute “Mortgage Pricing Differentials Across Hispanic, African-American, and White Households: Evidence From the American Housing Survey.” A principal goal of this article is to examine the extent to which differences in the interest rates obtained by homeowners of different race/ethnicity and income levels can be explained by differences in the characteristics of the borrowers, the properties, and the loans themselves.

In the next article, Zhu Xiao Di and Xiaodong Liu examine “The Importance of Wealth and Income in the Transition to Homeownership.” They investigate the probability of becoming a homeowner during a 15-year period, using Panel Study of Income Dynamics data. As might be expected, the findings confirm that both household income and wealth are important to the transition to homeownership, with wealth being a more important predictor than income regarding whether minorities become homeowners.

The concluding article, by Christopher E. Herbert and Winnie Tsen, utilizes Survey of Income and Program Participation data to investigate “The Potential of Downpayment Assistance for Increasing Homeownership Among Minority and Low-Income Households.” The results suggest that downpayment assistance programs that provide even modest amounts of assistance can significantly impact the number of low-income and minority households that buy homes.

Conclusion

Over the past decade, government and industry groups have made enormous efforts to improve homeownership opportunities for low-income and minority homebuyers. Industry underwriting guidelines have been made more flexible to deal with the special circumstances of low-income and minority groups, and new affordable mortgage products have been introduced and targeted to disadvantaged groups. Despite these efforts, more improvement is needed if we are to continue making progress. It is hoped that the research presented in this publication will lead to further innovation and support for programs and policies that promote minority and low-income homeownership.