The Importance of Wealth and Income in the Transition to Homeownership

W05-6: Homeownership has received great support from policy makers because of its perceived significant financial and social benefits for both individuals and communities. Interested researchers have generated a rich body of research on factors that could help increase homeownership rates, especially among low-income and minority households. Most studies have focused on household income and wealth constraints, although recent work has devoted more attention to household credit risk. These studies have consistently found that downpayment constraints restrict access to homeownership with greater frequency than income. More recent studies employing credit measures have also found that wealth and, to a lesser extent, credit constraints are more important than income constraints in limiting access to homeownership. Most of these studies employ a simulation methodology. Surprisingly, none of the existing studies use longitudinal data to observe how cohorts of households actually transition from renting to owning over a long period of time, how the probability of this transition relates to household income and wealth, and how the relationship between income and wealth and the transition to homeownership may change over time for an individual household. As time passes, changes in household circumstances, market conditions, or government policies and lending practices could influence the role of income and wealth in the probability of transitioning to homeownership…