The Dynamics of Homeownership: Eliminating the Gap between African American and White Households

Abstract

This article uses a sample of young renters from the Panel Study of Income Dynamics and a continuous-time econometric model to explore not only the initial tenure transition to first-time homeownership, but also subsequent possible tenure transitions to a second owned home, back to rental tenure and, indirectly, to a second owned home from rental tenure. Once estimated, the predicted probabilities of these transitions are used to calculate the probability of homeownership at various times for households in the sample. These estimates are done separately for African Americans and whites for two different 11-year time intervals, 1987–1997 and 1993–2003. A primary result is that if African American education, income, net wealth and savings behavior could be brought in line with that of white households the majority of the racial gap in homeownership could be eliminated in either time period.