Association for Public Policy Analysis & Management

Homeownership is viewed by many as integral to the American dream. Among many benefits it has been a successful means to accumulate household wealth for many families. However, this experience has differed substantially based on a family’s race or ethnicity. Among black and Hispanic households, house price appreciation has generally been lower than equivalent white households. At the same time, incidence of serious delinquency and foreclosure have been markedly higher. We find that the timing of entry into homeownership (e.g. entry at the peak of the housing cycle) and prevalence of exotic loan types (e.g. interest only loans, balloon loans) appear to be systematically different between minority households and their white peers. Furthermore, these factors are negatively associated with house price appreciation and positively associated with incidence of foreclosure. We find that from a policy perspective, advancing debt-financed homeownership as a vehicle for wealth accumulation is a risky proposition for many minority households.