Homeownership Plans among Hispanic Renters: Ethnic Differences or Geographic Differences?

Russell N. James IIIJorge H. AtilesUniversity of Georgia

U.S. Hispanic demographics

•The U.S. has the 2nd largest Hispanic population of any nation at 45.5 million in 2007 (Spain 40.4 million; Mexico 108.7 million)

•By 2020, approximately 15% of all United States households will be Hispanic (Masnick and Belsky 2006).

U.S. Hispanic homeownership• In 1980, 1990, and 2000, Hispanic households

in the United States had the lowest rate of homeownership of any major ethnic group, falling below non-Hispanic white, non-Hispanic black, Asian, and other non-Hispanic households (Cortes, et al. 2006).

• Conversely, more recent data suggest that since 2000, Hispanic homeownership levels grew faster than either non-Hispanic white or non-Hispanic black homeownership levels (Cortes, et al. 2006).

Factors motivating private rental sector renters to become homeowners•Personal, family, and cultural norms can set

expectations or norms for tenure (Morris & Winter, 1978).

•Environmental realities also affect these preferences.

•For example, to the extent that homeownership is seen as a profitable investment strategy, renters may be more motivated to purchase.

•Appreciation is a key factor separating owning from renting.

Ethnic differences in appreciation?•Simple differences in population

distributions throughout the country may lead to different appreciation expectations based upon the appreciation experiences in particular regions.

•Mixed evidence on the direct impact of homeowner or neighborhood ethnicity on appreciation (Flippen, 2004; Coate and Vanderhoff, 1993)

Study

•Examined the homeownership plans of renters in the private rental sector from 1995-2007

•Nationally-representative dataset (Survey of Consumer Finances)

Initial findings

•Data indicate that Hispanic renters experienced a dramatic upsurge in saving for homeownership – relative to renters of other ethnic backgrounds – during the 1998, 2001, and 2004 surveys.

•This relatively higher propensity to save for homeownership largely disappeared in the 2007 survey

Percentage of renters listing “buying own house” as one of the top two most important reasons to save

Hispanic status predicting currently planning for a home purchase (whether saving or not) among renters

2007 Savings Probit

2004 Savings Probit

2001 Savings Probit

1998 Savings Probit

1995 Savings Probit

Hispanic -0.0908 (0.1078)

0.1792 (0.1084)*

-0.1504 (0.1151)

-0.2927 (0.1223)**

-0.5172 (0.1545)***

Control variables included : Single male, Single female, Number of household members, liquid assets, Income, <High school diploma, Some college, Bachelor’s degree, Graduate degree, Age, Minor child in household, Years at current job

Hispanic status predicting presence of saving for a home purchase among renters

2007 Savings Probit

2004 Savings Probit

2001 Savings Probit

1998 Savings Probit

1995 Savings Probit

Hispanic 0.0327 (0.1159)

0.3931 (0.1145)***

0.0304 (0.1258)

-0.0149 (0.1324)

-0.352 (0.1749)**

Control variables included : Single male, Single female, Number of household members, liquid assets, Income, <High school diploma, Some college, Bachelor’s degree, Graduate degree, Age, Minor child in household, Years at current job

Explanation for the trend

•One possibility is differential price appreciation

•The SCF dataset has no public data on location of respondents

•However, we can project typical Hispanic housing appreciation observations based on state-level data

States with the highest percentage of Hispanic population (over 10%)

▫New Mexico 579,224 (38.2%)▫California 7,687,938 (25.8%)▫Texas 4,339,905 (25.5%)▫Arizona 688,338 (18.8%)▫Colorado 424,302 (12.9%)▫New York 2,214,026 (12.3%)▫Florida 1,574,143 (12.2%)▫Nevada 124,419 (10.4%)

2004 housing price appreciation

2007 housing price appreciation

Weighted State-Level House Appreciation in Trailing Twelve Months (OFHEO)

Hispanic Non-Hispanic DifferenceEnd of 1st Quarter 2007 2.56 3.09 -0.54End of 2nd Quarter 2007 2.50 3.21 -0.71End of 3rd Quarter 2007 0.92 1.88 -0.96End of 4th Quarter 2007 -0.92 0.58 -1.50End of 1st Quarter 2004 8.84 7.39 1.45End of 2nd Quarter 2004 11.10 8.91 2.19End of 3rd Quarter 2004 16.04 12.57 3.48End of 4th Quarter 2004 13.97 10.79 3.18End of 1st Quarter 2001 10.46 8.77 1.69End of 2nd Quarter 2001 10.00 8.47 1.53End of 3rd Quarter 2001 9.43 8.27 1.16End of 4th Quarter 2001 7.78 6.92 0.87End of 1st Quarter 1998 5.44 4.76 0.68End of 2nd Quarter 1998 5.74 5.23 0.50End of 3rd Quarter 1998 5.76 4.98 0.78End of 4th Quarter 1998 5.62 4.64 0.98End of 1st Quarter 1995 4.05 4.70 -0.65Previous data unavailable from OFHEO reports

Discussion

•The “bubble” in Hispanic renter homeownership plans corresponded with relative housing price appreciation trends in states with large Hispanic populations such as Southern California and South Florida.

•This suggests that the move to homeownership planning may have been more of a regional economic trend, rather than an ethnic one.

Future of renting and owning

•Post-crash housing demand suggests a systemic shift in preference from homeownership to renting.

•Higher mortgage default experience•More stringent future mortgage

underwriting obligations•All suggest a higher demand for renting

in the future.