(WP-01-S00) "Racial Differences in the Transition to Home Ownership"
Kerwin Charles and Erik Hurst




Understanding the source of the large disparities in accumulated wealth between black and white Americans is a research priority for empirical economists. Housing is likely to play a large explanatory role in ultimately explaining racial wealth differences, but a joint analysis of the various factors of the variables likely to affect home ownership outcomes has never been attempted. Our paper fills this void. Using multiple years of the recent supplements to the Panel Study of Income Dynamics, which specifically track home ownership decisions, we construct a sample of blacks and whites who are all initially renters, and analyze their transitions into home ownership. We study race differences in the various individual choices that are antecedent to home ownershi — considering a mortgage application and filing an application. Apart from a number of other variables rarely available at the individual level, we pay close attention to the role that the rental market may play in affecting these decisions. I addition, we study race differences in what might be termed the constraints to home ownership — the probability of a mortgage application being rejected, and the mortgage rate paid for accepted applications. Our work here differs in fundamental ways from previous attempts to answer the question. Finally, we present preliminary evidence on the possible importance of the differential sources of mortgage down payments.