Panel Paper: Is Timing Everything? Race, Homeownership, and Net Worth in the Tumultuous 2000s

Saturday, November 9, 2013 : 10:05 AM
DuPont Ballroom F (Washington Marriott)

*Names in bold indicate Presenter

Sandra Newman and C. Scott Holupka, Johns Hopkins University
The tumultuous 2000 decade took its toll on U.S. households, causing dramatic fluctuations in markers of economic well-being including unemployment rates, income, and residential stability.  Homeowners took a particularly hard hit, with foreclosures spiraling from less than 500,000/year in 2000 to nearly 4 million in 2011.

In this paper, we take advantage of the natural experiment provided by the volatile 2000s economy to understand how lower-income households (≤300 percent poverty) who moved into homeownership at different points during the 2000s fared compared with: (1) similar households who remained renters; and (2) middle-income households (301-500 percent poverty) who moved into homeownership during the same time periods.  Outcomes include work hours, earnings, wealth, and residential mobility, and are measured in 2005, 2007, and 2009.[1]  Analysis is based on the Panel Study of Income Dynamics, which provides rich data during the millennial decade along with substantial background information on sample households and individuals. 

New homeowners, the "treatment group," are those who were renters in two prior PSID waves and became homeowners by the third wave, with outcomes observed in the fourth and later waves (two or more years later).   To address selection and estimate causal relationships, we rely on three techniques: difference in difference; propensity score matching with difference in difference; and using lags in outcomes as instruments.[2]

Preliminary results reveal distinct patterns over the decade as the economy moved from stability to boom to bust.  Relative to renters, lower-income households who became homeowners by 2003 had consistently better economic outcomes two years later in 2005, those who became homeowners in 2005 lost much of their advantage over renters in 2007, and those who became homeowners in 2007 did almost no better than renters in 2009.   For residential moves over a 2-year period, the stark disparity in residential mobility rates between renters and new owners is apparent in 2003 and 2005, with roughly twice as many renters moving as owners.  But by 2007, new homeowners nearly caught up with renters leaving only a 15 percentage point differential between their mobility rates (53 percent for renters; 38 percent for owners).  Provocatively, middle-income and lower-income new homeowners fared about the same on these economic outcomes.  

[1] We plan to add 2011 when it is released by the PSID, currently projected for May

[2] Following the Arellano-Bond approach; see Roodman 2009 in The Stata Journal.