Time to First Homeownership:Racial Differences, and the Impact of 1986 Tax Reform Act

Abdul Munasib () and Donald Haurin
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Abdul Munasib: Oklahoma State University

No 701, Economics Working Paper Series from Oklahoma State University, Department of Economics and Legal Studies in Business

Abstract: The rate of transition of young adults from living with parents or renting to homeownership affects the national homeownership rate. There are substantial racial and ethnic differences in the length of time that it takes for this transition to occur, contributing to the well-known racial gaps in ownership rates. These differences are important because they affect the length of time that households enjoy the economic and social benefits of homeownership. This study uses a national longitudinal data from 1979 to 2000 to analyze the reasons for observed differences in the time to first ownership. Hypotheses are derived from two perspectives: the demand for homeownership and the supply of dwelling suitable for owner-occupancy. From the demand side, factors influencing the timing of first ownership are derived from the user cost model and the consumption -investment models of homeownership. From the supply side, consideration of geographic location and the mortgage market provides additional hypotheses. A relative risk Coxmodel is used in the estimation. We find that minorities achieve first-time homeownership more slowly than Whites. Even after accounting for a variety of individual, geographic, and macroeconomic characteristics, we find that significant differences among the races remain that cannot be attributed to any observed economic differences. As a secondary focus of the study, we look at the effect of 1986 Tax Act Reform (TRA) and find that it adversely affected th e low income households in terms of achieving first-time homeownership.

Pages: 39 pages
Date: 2007, Revised 2007
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