econintersect.com
       
  

FREE NEWSLETTER: Econintersect sends a nightly newsletter highlighting news events of the day, and providing a summary of new articles posted on the website. Econintersect will not sell or pass your email address to others per our privacy policy. You can cancel this subscription at any time by selecting the unsubscribing link in the footer of each email.



posted on 02 August 2015

Race & Homeownership: How Much Of The Differences Are Explainable By Economics Alone?

by Zillow

Generally, the black homeownership rate is considerably lower than the white homeownership rate. But why? The full answer is difficult to determine based purely on economics.

Black and white households differ in many ways, including income, age and education, all of which might help explain some of their differences in homeownership. But some of the gap in homeownership rates might not be explained by demographic and economic factors and might be due to more pernicious causes like racism in the mortgage process, or cultural differences.

To untangle this thorny issue, we examined statistically how much of the difference in homeownership rates can be explained by differences in economic characteristics, and how much remains unaccounted for by economics and demographics and might instead be attributable to those more insidious causes.

To do this, we created a model to estimate the probability of owning a home given the race of the household's head, along with a variety of socioeconomic and demographic characteristics, including:

  • Year
  • Age of head of household
  • Income
  • Number of children
  • Number of adults
  • Education of head of household
  • Education of spouse
  • Marital stats
  • Inheritance
  • Number of vehicles

There are some important variables missing from the equation. For example, we don't know the credit score of mortgage applicants, a key factor in determining whether they can or will buy a home. That being said, over time, one would expect two different groups would generally have similar credit and purchase homes at a similar rate when controlling for differences in incomes.

This model allows us to answer the following question: Statistically, how high would we expect the black homeownership rate to rise if the average income, education and all the other variables above were at the same level as they are for white households? That is - how much of the difference in homeownership rates can be explained purely as a result of demographic and socioeconomic differences between the groups? The results are summarized below.

RacialProb

In every year modeled, those demographic and socioeconomic differences can explain some of the difference in homeownership rates, but most of it remains unaccounted for. For example, in 2011, the gap between the black and white homeownership rate in the U.S. was 20 percentage points. But only 6 percentage points of that gap can be explained as a result of demographic and socioeconomic differences between the black and white households - the remainder of the gap remains unexplained by observable data.

Interestingly, while the overall gap between black and white homeownership has remained fairly stable at roughly 20 percentage point over the years, the portion of that gap which can be explained by socioeconomic factors has declined from 13 percentage points in 1999 to 6 percentage points in 2011.

Where this gap originates is difficult to quantify. This gap could come from a variety of sources, including discrimination in the mortgage market and differences in preferences for owning homes. Unfortunately, these factors are hard to observe directly, making distinguishing between them difficult. But clearly understanding what drives this gap will be critical if we are ever going to close racial disparities in homeownership.

Methodology

Using the Panel Survey of Income Dynamics to build a penalized logistic model, we trained on a random sample of 80 percent of the sample and tested the accuracy on the remaining 20 percent of the data. People having no or negative income or wealth were excluded, as were those in the top 1 percent of income and wealth.

About the Author

Cody Fuller is an Economic Analyst at Zillow. To read more about Cody, click here.

Click here for Historical News Post Listing










Make a Comment

Econintersect wants your comments, data and opinion on the articles posted.  As the internet is a "war zone" of trolls, hackers and spammers - Econintersect must balance its defences against ease of commenting.  We have joined with Livefyre to manage our comment streams.

To comment, using Livefyre just click the "Sign In" button at the top-left corner of the comment box below. You can create a commenting account using your favorite social network such as Twitter, Facebook, Google+, LinkedIn or Open ID - or open a Livefyre account using your email address.



You can also comment using Facebook directly using he comment block below.





Econintersect Contributors


search_box

Print this page or create a PDF file of this page
Print Friendly and PDF


The growing use of ad blocking software is creating a shortfall in covering our fixed expenses. Please consider a donation to Econintersect to allow continuing output of quality and balanced financial and economic news and analysis.


Take a look at what is going on inside of Econintersect.com
Main Home
Analysis Blog
Joan Robinson’s Critique of Marginal Utility Theory
The Truth About Trade Agreements - and Why We Need Them
News Blog
What We Read Today 08 December 2016
Five Mysterious Space Diseases That Could Kill Astronauts Before They Get To Mars
03 December 2016 Initial Unemployment Claims Rolling Average Insignificantly Worsens
November 2016 CBO Monthly Budget Review: Down by 3 Percent in the First Two Months of Fiscal Year 2017
Putting Grassroots Terrorism In The Proper Perspective
Crude Oil Prices: "Random"? Hardly. The More Emotional The Market, The More Predictable It Is.
Infographic Of The Day: Job-Hopping
Early Headlines: Asia Stocks Up, Oil Firms, Russia's Big Oil Deal, Trump Will Stay In Business, Trump Menaces Drug Cos, Banks Rig Silver, Italy's 360B NPL, Iraq Has Oil Cut Problem, China Trade Improves And More
Goals Come With A Hefty Price Tag At The Emirates
Facebook Strongest On Home Ground
Defence Budgets Are Surging In The Baltic States
It's Been A Turbulent Start, But Juno Is Now Delivering Spectacular Insights Into Jupiter
The World's Most Reputable Cities
Investing Blog
Trumpsternomics And Economic Growth
The Real 401k Plan Manager 07 May 2016
Opinion Blog
Italy Confronts The European Elite
The US Government Needs To Spend More
Precious Metals Blog
Silver Prices Rebounded Today: Where They Are Headed
Live Markets
08Dec2016 Market Close: Wall Street Closes Higher, But Not Without Pause For Indicators That Spell CAUTION In Capital Letters
Amazon Books & More






.... and keep up with economic news using our dynamic economic newspapers with the largest international coverage on the internet
Asia / Pacific
Europe
Middle East / Africa
Americas
USA Government



Crowdfunding ....






























 navigate econintersect.com

Blogs

Analysis Blog
News Blog
Investing Blog
Opinion Blog
Precious Metals Blog
Markets Blog
Video of the Day
Weather

Newspapers

Asia / Pacific
Europe
Middle East / Africa
Americas
USA Government
     

RSS Feeds / Social Media

Combined Econintersect Feed
Google+
Facebook
Twitter
Digg

Free Newsletter

Marketplace - Books & More

Economic Forecast

Content Contribution

Contact

About

  Top Economics Site

Investing.com Contributor TalkMarkets Contributor Finance Blogs Free PageRank Checker Active Search Results Google+

This Web Page by Steven Hansen ---- Copyright 2010 - 2016 Econintersect LLC - all rights reserved