The Potential of Downpayment Assistance for
Increasing Homeownership Among Minority and Low-Income Households
(January 2005, 37p)
This study investigates the potential for downpayment assistance
efforts, such as those provided through the American Dream
Downpayment Act, to increase homeownership – both overall
and among the low-income and minority households that are
of special concern to policymakers. There are several ways
in which this study adds to existing research. First, it evaluates
the potential of downpayment assistance programs to stimulate
homeownership by measuring the impact of cash grants on the
propensity to own. Second, most tenure choice studies use
cross-sectional samples of both owners and renters. But homeowners’
wealth will at least in part be the result of homeownership,
rather than a cause. In contrast, this study avoids the endogeneity
of wealth and homeownership by focusing exclusively on a sample
of renter households. Third, by tracking renter households
over time, it captures the ability of households to accumulate
savings, reduce expenses, and/or increase income to achieve
homeownership – all dynamic aspects of the tenure transition
process that are not captured by cross-sectional analysis.
Finally, the period of study, 1997 to 2000, was a time of
ready availability of low downpayment mortgage products. Thus,
the study sheds light on the importance of wealth constraints
at a time when renters could benefit from these mortgage market
innovations.
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