Association for Public Policy Analysis & Management

In the years following the financial crisis, homeownership rates have continued to decline. Minority groups such as blacks and Hispanics, have been particularly slow to transition into homeownership. Using a uniquely constructed anonymized household panel data for the years 2012 and 2018 obtained from a credit bureau, we find blacks and Hispanics are one-half and two-third as likely to transition into mortgage ownership, respectively, compared to whites. In this paper, we analyze the role of credit attributes in explaining the racial gap in transition rates during the recovery period.

We first investigate the big constraints faced by consumers transitioning into mortgage ownership in the recovery period: credit attributes, income, debt, house prices, or demand for homeownership? Using a logistic regression framework, we find that while age, marital status and homeownership demand are big drivers of transition rate, other factors such as student loan debt, gender, and education level play less important roles. Consumers with missing credit scores or insufficient credit histories are less likely to transition. Second, recognizing differences in the experiences of black and Hispanic consumers, we quantify contribution of racial differences in individual characteristics to racial gap in transition rates for each minority group separately. Using Blinder-Oaxaca decomposition technique for a nonlinear equation, we find that racial differences in credit attributes explain a large part of the racial gap in the transition rates for both minority groups. However, while racial differences in geographic location contribute substantially to white-Hispanic gap in transition rate, racial differences in household composition matters more in explaining the white-black gap in transition rate.