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Studying the Relationship Between Homebuying and Wealth

A couple of real estate and finance experts are digging into three year's worth of data to uncover how today's housing market conditions could be creating an environment that intensifies the already significant homeownership and wealth gap between people of color and white Americans.

Jessica Lautz, National Association of Realtors (NAR) VP of Demographics and Behavioral Insights, and Michael White, Nottingham Trent University Professor and Director of the Centre of the Built Environment have published a paper called  Mind The Gap examines the purchase price differences among homebuyers—using stats collected January 2014 to December 2017—who purchased a primary-residence property and how the purchase price can lead to further wealth gaps through equity in homeownership.

They found that Hispanic and Black Americans purchased homes 11.2% and 10.6% less expensive, respectively, than white Americans when controlling for household income, home size, location, and down-payment help from family.

Another group whose wealth stands to suffer as a result of home purchase prices is student-loan borrowers. Homebuyers who had student debt purchased homes that were 18.8% less expensive than those without student debt, the research found.

"Homeownership is one of the best ways to build wealth and purchasing homes that are significantly less expensive can lead to lost wealth accumulation—and possibly lost homeownership—across generations," the researchers reported.

The authors added: "Through this backdrop of racial wealth differences, homebuyers post-Great Recession, face a housing market with waning housing affordability and an acute housing supply shortage for entry-level buyers. As a result, home prices have increased and ownership has become out of reach for many Americans. The home search time for first-time buyers or buyers with limited income can be arduous with limited inventory. This paper examines how the price of the home purchased among successful homebuyers who enter the housing market exacerbates these trends and further widens the homeownership and wealth gap."

Lautz and White suggest a number of policy steps—including financial literacy, refinancing student loans, expansion of mortgage financing through alternative credit scoring models, and expanding public awareness of low down payment programs—that may help mitigate the homeownership gap.

The full paper is available through NAR.org. 

About Author: Christina Hughes Babb

Christina Hughes Babb is a reporter for DS News and MReport. A graduate of Southern Methodist University, she has been a reporter, editor, and publisher in the Dallas area for more than 15 years. During her 10 years at Advocate Media/Dallas Magazine, she published thousands of articles covering local politics, real estate, development, crime, the arts, entertainment, and human interest, among other topics. She has won two national Mayborn School of Journalism Ten Spurs awards for nonfiction, and has penned pieces for Texas Monthly, Salon.com, Dallas Observer, Edible, and the Dallas Morning news, among others.

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