Hispanic Homeownership Seminar U.S. Department of Housing and Urban Development Thursday, June 1, 2006

Hispanic Homeownership Seminar - June 1, Housing Tenure Expenditure and Satisfaction across Hispanic, African- American, and White Households: Evidence from the American Housing Survey Thomas P. Boehm and Alan M. Schlottmann

Hispanic Homeownership Seminar - June 1, Two Primary Components to the Analysis of the Differences in Housing Circumstances across Racial/Ethnic Groups Housing Tenure and Housing Expenditure Quality of Structural and Neighborhood Environment

Hispanic Homeownership Seminar - June 1, The Data Pooled recent AHS MSA samples: 41 MSAs – sampling years 1998, 2002, and 2004 Approximately 5,000 households in each MSA Why the MSA Samples? 17,968 Hispanic Households in the combined sample Identify the housing markets in which housing decisions are being made

Hispanic Homeownership Seminar - June 1, I. Housing Tenure and Expenditure Two Sub-samples Considered in the Analysis All Households Recent Movers Stratification of the Samples High versus Low Income Non-White versus White Hispanics Recent Immigrant Status

Hispanic Homeownership Seminar - June 1, The Results Analysis of Means Ownership Is Substantially More Likely for Whites Low-income Hispanics and African-Americans ownership rates for the full sample are 38.0 % and 36.5 % respectively versus 60.8 % for whites.

Hispanic Homeownership Seminar - June 1, House Value and Rental Cost Substantially Higher for White Households Low Income Households – Full Sample Mean House Value: Whites - $147,289 African Americans - $95,055 Hispanics - $128,681 Mean Rent Payment: Whites - $606 African Americans - $496 Hispanics - $592

Hispanic Homeownership Seminar - June 1, Differences for Hispanic Households 1.Hispanic homeowners experience higher total amounts of debt: For example, the full sample debt levels for low income houses: White households – $35,509 Black households – $35,164 Hispanic households – $45,971

Hispanic Homeownership Seminar - June 1, Differences for Hispanic Households 2. Hispanic Households are more crowded than other groups For example, for the full sample for lower income families: Owners – Hispanics average 681 square feet per person, while African-Americans and whites average 1,062 and 1,130 square feet per person respectably. Renters – Hispanics average 391 square feet per person, African-Americans 574, whites 640.

Hispanic Homeownership Seminar - June 1, Regression Analysis Likelihood of Homeownership – Is the likelihood of homeownership lower for different racial/ethnic groups when controlling for other factors that might influence the likelihood that they would be able to purchase a home? Control factors – The housing market (41 MSAs), the marital status and sex of household head, age of the household head, the family size, the income of the family and a categorical variable identifying families that have substantial savings ($25,000 or more).

Hispanic Homeownership Seminar - June 1, Both minority groups have a substantially lower likelihood of ownership For the full sample, for low income families African-Americans 40.5 % less likely to own White-Hispanics 28.5 % less likely to own Non-White Hispanics 39.2 % less likely to own For the recent movers, for low income families: African-Americans 52.3 % less likely to own White Hispanics 38.2 % less likely to own Non-White Hispanics 23.0 % less likely to own

Hispanic Homeownership Seminar - June 1, Differential Levels of House Value for Homeowners Controlling for other factors as before (i.e., income, education, the housing market, etc.) For the full sample for low-income owners: African-Americans $20,113 lower house value White-Hispanics $19,768 lower house value Non-White Hispanics $28,845 lower house value For the recent mover sample for low-income owners: African-Americans $35,077 lower house value White-Hispanics $23,715 lower house value Non-White Hispanics $45,019 lower house value

Hispanic Homeownership Seminar - June 1, Differential Annual Rent Payment for Renters For the Full Sample of low-income renters: African-American Families $712 lower rent levels White-Hispanic Families $764 lower rent levels Non-white Hispanic Families$871 lower rent levels For the Recent-mover sample of low-income renters: African-American Families $742 lower rent levels White-Hispanic Families $844 lower rent levels Non-white Hispanic Families $946 lower rent levels

Hispanic Homeownership Seminar - June 1, The Impact of “Time in the U.S.” on Homeownership, and House Value and Rent Levels Available only for 2002 and 2004 Categorical representation of “time in the U.S.” – 5 years or less – 5 through 12 years – 13 through 22 years – 23 years or more

Hispanic Homeownership Seminar - June 1, Results for Recent Immigrants Households in the U.S. for less than 5 years and 5-12 years are significantly less likely to buy a home than households whose head was born in this country holding other factors constant. In contrast, for the recent mover sample these recent immigrant groups do not have a substantially lower likelihood of being owners For both groups, renters have a significantly lower, rental expenditure but there is no impact of recent immigrant status on the value of house owned by either low or high income households.

Hispanic Homeownership Seminar - June 1, II.Satisfaction with Structural and Neighborhood Characteristics AHS – 10 point scale ranking structural and neighborhood dimension of housing units. Mean Ranking The primary determinant of these rankings is tenure – owners rank both neighborhood and structural characteristics higher than renters

Hispanic Homeownership Seminar - June 1, Low-Income – Full Sample Owners Structural RankNeighborhood Rank White Black Hispanic Renters Structural RankNeighborhood Rank White Black Hispanic

Hispanic Homeownership Seminar - June 1, Analysis of Individual Structural and Neighborhood Characteristics Ordinal Probit Model Equations Stratified by Tenure, Race/Ethnic Group, and Income

Hispanic Homeownership Seminar - June 1, Results for Structural Quality All households react in a very similar manner to structural characteristics. Factors lowering Structural Quality: External leaks, internal leaks, vermin problems, major structural problems, and interior deterioration, etc. Factors increasing Structural Quality: Being on a public sewer system, plumbing and toilets being in satisfactory working order, having a central heating system, etc.

Hispanic Homeownership Seminar - June 1, Results for Structural Quality Not all groups have identical characteristics circumstances For the full sample, minorities do have a higher proportion with one or more significant structural problem. Low-Income Owned Units – Full Sample Hispanics43.2% with major structural problems African-Americans54.4% with major structural problems Whites23.0% with major structural problems

Hispanic Homeownership Seminar - June 1, Water quality issues are worse for Hispanic households than African American or white households Low-Income Homeowners Hispanic24.3% water quality a problem African-American13.4% water quality a problem White8.5% water quality a problem

Hispanic Homeownership Seminar - June 1, Heating system quality is generally worse for Hispanic households than African-Americans or White households Low-Income Homeowners Hispanic10.7% water quality a problem African-American6.3% water quality a problem White2.8% water quality a problem

Hispanic Homeownership Seminar - June 1, Low-income Hispanic households face more crowding than do their African-American or white counterparts. Low-Income Homeowners Hispanic2.5 rooms per person African-American3.5 rooms per person White3.8 rooms per person

Hispanic Homeownership Seminar - June 1, Deterioration of Interior facilities (i.e., cracks, holes in the walls or ceiling, holes in the floor, broken plaster or peeling paint) Low-Income Homeowners Hispanic9.2% African-American11.8% White6.0%

Hispanic Homeownership Seminar - June 1, Results for Neighborhood Quality All households react in a similar manner to factors effecting neighborhood quality Factors Making a Neighborhood Undesirable: crime problems, litter problems, noise problems, junk and abandoned buildings, etc. Factors Making a Neighborhood Desirable: Green space, newer buildings, etc.

Hispanic Homeownership Seminar - June 1, Results for Neighborhood Quality Not all groups have identical characteristics circumstances Crime problems and inadequate police protection are more likely to be perceived by African-Americans and White Households. Low-Income Renters Hispanic8.9% Police Protection Inadequate African-American15.9% Police Protection Inadequate White6.1% Police Protection Inadequate

Hispanic Homeownership Seminar - June 1, Green space is less likely to be near minority owned homes. Low-Income Owners Hispanic23.79% Green Space Nearby African-American27.18% Green Space Nearby White35.67% Green Space Nearby

Hispanic Homeownership Seminar - June 1, African-Americans owners and renters are more likely to have abandoned buildings nearby. Low-Income Renters Hispanic8.9% Abandoned Buildings a problem African-American15.9% Abandoned Buildings a problem White6.1% Abandoned Buildings a problem

Hispanic Homeownership Seminar - June 1, Minority renters are more likely to be located in areas in which road repairs are a concern. Low-Income Renters Hispanic43.4% Road repairs a problem African-American50.3% Road repairs a problem White38.0% Road repairs a problem

Hispanic Homeownership Seminar - June 1, Summary 1.First time the housing circumstances of a large national sample of Hispanics compared to African-Americans and Whites. 2.A primary determinant of structural and neighborhood satisfaction is homeownership. Clearly, Hispanics and African-Americans are still at a disadvantage. 3.The lower value of rented and owned units for African-American households in the sample suggests that they might be considered generally worse off than Hispanics with regard to housing 4.Regardless of Racial/Ethnic background the same specific neighborhood and structural factors influence housing satisfaction, but characteristics of the housing in which they live can be quite different even within a particular income group and tenure type.

Hispanic Homeownership Seminar - June 1, Summary 5.Recent Immigrant Status can have a significant on housing choice influence. 6.Some unique aspects of the Hispanic housing situation were observed a.White and Non-White Hispanics often appeared to have significantly worse outcomes, even when other factors were controlled for b.Hispanic households appear generally more crowded c.Hispanic households appear to have relatively high home mortgage debt levels d.Hispanic households are more likely to experience problems with water quality and live in units with lower quality heating sources

Hispanic Homeownership Seminar - June 1, Homeownership Rate Differences Between Hispanics and Non-Hispanic Whites: Regional Variation at the County Level George S. Masnick

Hispanic Homeownership Seminar - June 1, Research Goals Better understand the magnitude of homeownership rate gaps between Hispanics and non-Hispanic whites. Better understand the relationships between homeownership rate gaps and selected explanatory variables. Identify counties that are regional outliers, where homeownership rate gaps are large by regional standards but where explanatory differences are weak. Such counties could be targets of future efforts to improve homeownership opportunities for young Hispanic families.

Hispanic Homeownership Seminar - June 1, Background Facts Hispanics are geographically concentrated. Hispanic household heads are younger. Non-Hispanic white/ Hispanic home ownership rate gaps are smallest for younger householders. West and South have smaller home ownership rate gaps than Midwest and Northeast

Hispanic Homeownership Seminar - June 1, Methodology Select the 25 counties in each census region that have the highest numerical Hispanic representation. Focus on young adults Maintain a regional focus. Data source is 2000 census summary files Rely on graphic representation to understand Hispanic/ non-Hispanic white differences (Chart Type #1).

Hispanic Homeownership Seminar - June 1, Chart Type #1 - West Diagonal represents equality Short dark line represents trend Separation between lines represents departure from equality Points above trend line represent outliers Non-Hispanic White Ho Rate

Hispanic Homeownership Seminar - June 1, Chart Type #1 - South Diagonal represents equality Short dark line represents trend Separation between lines represents departure from equality Points above trend line represent outliers Non-Hispanic White Ho Rate

Hispanic Homeownership Seminar - June 1, Chart Type #1 - Midwest Diagonal represents equality Short dark line represents trend Separation between lines represents departure from equality Points above trend line represent outliers Non-Hispanic White Ho Rate

Hispanic Homeownership Seminar - June 1, Chart Type #1 - Northeast Diagonal represents equality Short dark line represents trend Separation between lines represents departure from equality Points above trend line represent outliers Non-Hispanic White Ho Rate

Hispanic Homeownership Seminar - June 1, Explanatory Variables Median Income and % Age Earning $40K+ Median Housing Value Hispanic Housing Costs as a % of Household Income Share Owner Units Built Since 1980 Share Owner Units Single Family Detached Share of Hispanic Foreign Born Not a Citizen Share Age Married with Kids <18

Hispanic Homeownership Seminar - June 1, Explanatory Variables Median Income and % Age Earning $40K+ Median Housing Value Housing Costs as a % of Household Income Share Owner Units Built Since 1980 Share Owner Units Single Family Detached Share of Hispanic Foreign Born Not a Citizen Share Age Married with Kids <18

Hispanic Homeownership Seminar - June 1, Median Housing Value - West Diagonal represents equality Short dark line represents trend Separation between lines represents departure from equality Points above trend line represent outliers Non-Hispanic White Owners

Hispanic Homeownership Seminar - June 1, Median Housing Value - South Diagonal represents equality Short dark line represents trend Separation between lines represents departure from equality Points above trend line represent outliers Non-Hispanic White Owners

Hispanic Homeownership Seminar - June 1, Median Housing Value - Midwest Diagonal represents equality Short dark line represents trend Separation between lines represents departure from equality Points above trend line represent outliers Non-Hispanic White Owners

Hispanic Homeownership Seminar - June 1, Median Housing Value - Northeast Diagonal represents equality Short dark line represents trend Separation between lines represents departure from equality Points above trend line represent outliers Non-Hispanic White Owners

Hispanic Homeownership Seminar - June 1, Explanatory Variables Median Income and % Age Earning $40K+ Median Housing Value Housing Costs as a % of Household Income Share Owner Units Built Since 1980 Share Owner Units Single Family Detached Share of Hispanic Foreign Born Not a Citizen Share Age Married with Kids <18

Hispanic Homeownership Seminar - June 1, Median Cost Burden - West Diagonal represents equality Short dark line represents trend Separation between lines represents departure from equality Points above trend line represent outliers Non-Hispanic White Owners

Hispanic Homeownership Seminar - June 1, Median Cost Burden - South Diagonal represents equality Short dark line represents trend Separation between lines represents departure from equality Points above trend line represent outliers Non-Hispanic White Owners

Hispanic Homeownership Seminar - June 1, Median Cost Burden - Midwest Diagonal represents equality Short dark line represents trend Separation between lines represents departure from equality Points above trend line represent outliers Non-Hispanic White Owners

Hispanic Homeownership Seminar - June 1, Median Cost Burden - Northeast Diagonal represents equality Short dark line represents trend Separation between lines represents departure from equality Points above trend line represent outliers Non-Hispanic White Owners

Hispanic Homeownership Seminar - June 1, Methodology Rely on graphic representation to study the importance of explanatory variables and to identify outliers (Chart Type # 2).

Hispanic Homeownership Seminar - June 1, Chart Type #2 (Median Value) - West Explanatory variables generally show weak relationships with home ownership gaps Outliers of interest are those above the line of best fit and to the left Home Ownership Rate Gap

Hispanic Homeownership Seminar - June 1, Chart Type #2 (Median Value) - South Explanatory variables generally show weak relationships with home ownership gaps Outliers of interest are those above the line of best fit and to the left Home Ownership Rate Gap

Hispanic Homeownership Seminar - June 1, Chart Type #2 (Median Value)- Midwest Explanatory variables generally show weak relationships with home ownership gaps Outliers of interest are those above the line of best fit and to the left Home Ownership Rate Gap

Hispanic Homeownership Seminar - June 1, Chart Type #2 (Median Value) - Northeast Explanatory variables generally show weak relationships with home ownership gaps Outliers of interest are those above the line of best fit and to the left Home Ownership Rate Gap

Hispanic Homeownership Seminar - June 1, Outliers Short List (Criteria) Must be Ranked in Top 10 (among 25 Counties) on Largest Home Ownership Rate Gaps for Year olds in Each Region Pick Five Counties Down the Top 10 Gap List that Score 15 or Lower on Average Ranking of All Seven Explanatory Variables Combined

Hispanic Homeownership Seminar - June 1, Outliers Short List (Counties) West - – Maricopa, AZ – Fresno, CA – Clark, NV – San Joaquin, CA – Contra Costa, CA South - – DeKalb, GA – Prince George’s, MD – Denton, TX – Palm Beach, FL – Oklahoma, OK Midwest - – Johnson, KS – Marion, IN – McHenry, IL – Lorain, OH – Kent, MI Northeast - – Worcester, MA – Hartford, CT – Hampden, MA – Nassau, NY – New Haven, CT

Hispanic Homeownership Seminar - June 1, Summary Summary and Conclusions…

Hispanic Homeownership Seminar - June 1, Mortgage Pricing Differentials Across Hispanic, African-American, and White Households: Evidence from the American Housing Survey Thomas P. Boehm and Alan M. Schlottmann

Hispanic Homeownership Seminar - June 1, Literature on Racial/Ethnic Differences in Mortgage Lending Mortgage Origination and Redlining Mortgage Pricing Mortgage Pricing – Using the American Housing Survey – Susin – 2003 – Boehm/Schlottmann/Thistle – 2004

Hispanic Homeownership Seminar - June 1, Comparison to the Literature Larger Sample of Hispanic Households Markets in which loans were originated can be identified as well as the year in which they were originated More stratification can be done by: – Minority subgroup – Loan type » Conventional versus VA/FHA » Refinancing versus Home Purchase » First Mortgage versus junior mortgage and home equity loans

Hispanic Homeownership Seminar - June 1, The Data Pooled recent AHS MSA samples: 41 MSAs – sampling years 1998, 2002, and 2004 Mortgages of Different Type in the Sample First Mortgages - Full Sample High IncomeLow Income Hispanic African AmericanWhiteHispanic African AmericanWhiteTotals Conv / Home Purchase ,7171,7921,2615,22111,918 Gov. / Home Purchase ,0161,5885,388 Conv / Refinance ,9555,366 Gov. / Refinance ,089 23,761

Hispanic Homeownership Seminar - June 1, The Data First Mortgages – Recent Mover Sample High IncomeLow Income Hispanic African AmericanWhiteHispanic African AmericanWhiteTotals Conv / Home Purchase ,3342,997 Gov. / Home Purchase ,341 4,338 Junior Mortgages – Full Sample High IncomeLow Income Hispanic African AmericanWhiteHispanic African AmericanWhiteTotals Junior Mortgage ,0332,234 Home Equity Loan ,4932,470 4,704

Hispanic Homeownership Seminar - June 1, Constraints on the Sample of 1st Mortgages Mortgages made by financial institution Mortgage made on residence only Unit not condominium or manufactured Loan not assumption or wraparound For 1st Mortgages – loan terms 10, 15, 20, 25, or 30 years

Hispanic Homeownership Seminar - June 1, Analysis of First Mortgages Average Mortgage Interest Rates Interest rates are substantial higher for low-income families Hispanics higher than African-Americans in all but one market segment (conventional refinance, full sample) Recent Movers – Conventional – Purchase Low-Income Hispanic7.20% Low-Income African-American6.81% Low-Income White6.63 %

Hispanic Homeownership Seminar - June 1, Regression Analysis Model Specification Three categories of control variables: – Characteristics of the borrower – Characteristics of the property – Characteristics of the loan itself Cannot determine if discrimination exists because data does not include: – Individual’s net-wealth or credit history – Institution’s characteristics or underwriting criteria

Hispanic Homeownership Seminar - June 1, Home Purchase Market – Effects of Race/Ethnicity In the conventional market for the full sample Non-white and white Hispanics pay significantly higher rate than whites (14.6 and 9.2 basis points respectively), but not as high as African-Americans (30.6 basis points) Among recent movers, only Black and Non-white Hispanics pay significantly more than White households (20.6 and 14.7 basis points) In the FHA/VA market minorities rates are generally not significantly greater than those of White households. Only African-American households pay significantly higher rates (14.8 basis points)

Hispanic Homeownership Seminar - June 1, Home Purchase Market – Other Variables Higher housing cost to income ratios lead to significantly higher interest rates, but there are no obvious systematic differences in this ratio across racial/ethnic groups. Higher levels of education are associated with lower interest rates – these effects are generally more important in conventional markets

Hispanic Homeownership Seminar - June 1, Lower levels of education characterize lower income minorities particularly Hispanics. Conventional/Home Purchase/1st Mortgage/Full Sample Low Income Hispanic 12.3% college educated Low Income African-American20.9% college educated Low Income White28.9% college educated Conventional/Home Purchase/1st Mortgage/Recent Mover Low Income Hispanic 14.1% college educated Low Income African-American30.3% college educated Low Income White38.1% college educated

Hispanic Homeownership Seminar - June 1, Higher Loan to Value ratios lead to higher interest rates for recent movers in the conventional market. Low Income Hispanic 49.4% LTV>.9 Low Income African-American44.4% LTV>.9 Low Income White29.7% LTV>.9 High Income Hispanic 53.3% LTV>.9 High Income African-American39.0% LTV>.9 High Income White27.3% LTV>.9

Hispanic Homeownership Seminar - June 1, African American households lower value (lower quality) units are correlated with higher interest rates. Conventional/Home Purchase/1st Mortgage/Full Sample Low Income Hispanic $149,954 house value Low Income African-American$109,833 house value Low Income White$160,217 house value

Hispanic Homeownership Seminar - June 1, Refinancing For AHS this is defined as a loan originated in a year more recent than the year of purchase Refinancing is less likely to be done in the FHA/VA market than Conventional (1,089 versus 5366) Minorities, particularly African-Americans appear somewhat less likely to refinance Conventional/Refinance/1st Mortgage/Full Sample Hispanic 22.8% refinance* African-American22.5% refinance* White29.7% refinance* *percentages = refinancings as a % of to first mortgages

Hispanic Homeownership Seminar - June 1, Regression Results Interest Rate Differential by Racial/Ethnic Group For FHA/VA loans no significant differential exists For Conventional loans, blacks and non-white Hispanics refinance at a significantly higher cost (41.2 and 12.8 basis points respectively).

Hispanic Homeownership Seminar - June 1, Other Variables Impact on Interest Rates College Educated Households have significantly lower rates, but generally education less important in the refinancing market Generally risk related control variables less important in the FHA/VA market than the conventional In particular, housing cost to income ratios, loan terms, and house value all behave as expected. Lower house values again lead are associated with significantly higher rates for African-American households

Hispanic Homeownership Seminar - June 1, Junior Mortgages and Home Equity Loans Minorities are much less likely than whites to use home equity loans, more comparable to whites in use of junior mortgages Low Income Hispanic 4.1%home equity* Low Income African-American3.8%home equity* Low Income White12.3%home equity* *home equity loans / total first mortgage loans Low Income Hispanic 5.2%junior mortgage* Low Income African-American7.6%junior mortgage* Low Income White8.9%junior mortgage* *junior mortgages / total first mortgage loans

Hispanic Homeownership Seminar - June 1, Generally Hispanic Interest Rates are comparable to Whites while African-Americans rates are substantially higher Junior Mortgage Low Income Hispanic8.13%interest rate Low Income African-American8.89%interest rate Low Income White8.19%interest rate Home Equity Loans Low Income Hispanic6.53%interest rate Low Income African-American7.74%interest rate Low Income White6.68%interest rate

Hispanic Homeownership Seminar - June 1, Whites and Hispanics take on substantially more debt than African-American families Junior Mortgage Low Income Hispanic$37,591 amount of debt Low Income African-American$21,749 amount of debt Low Income White$34,512 amount of debt Home Equity Loans Low Income Hispanic $26,142 amount of debt Low Income African-American$21,399 amount of debt Low Income White$22,916 amount of debt

Hispanic Homeownership Seminar - June 1, Regression Results Significance of Race/Ethnic Group – For junior mortgages only African-Americans have a significantly higher interest rate controlling for other factors (44.7 basis points higher) – For home equity loans, Non-white Hispanics and African- Americans have significantly higher interest rates controlling for other factors (52.3 and 62.7 basis points respectively)

Hispanic Homeownership Seminar - June 1, Other Significant Variables Junior Mortgages Education level is inversely correlated with interest rates and whites are generally better educated than minorities. Higher housing Cost to income ratios, longer loan terms and lower house values are consistent with higher interest rates. African-Americans have substantially lower house values than other households.

Hispanic Homeownership Seminar - June 1, Other Significant Variables Home Equity Loans High housing cost to income and lower house values give rise to significantly higher interest rates. African-Americans are observed to have relatively high interest cost, in part, because of their relatively low property values. Hispanics interest rates are higher than they otherwise would be because of their high levels of debt (primary component of housing cost) relative to their income level.

Hispanic Homeownership Seminar - June 1, Summary First look at large sample of Hispanic families, first look at junior and secondary financing. Controlling for other factors that might influence rates, minority households are more likely to have higher rates for 1st mortgages than whites, but primarily in the conventional markets. African-Americans rates tend to higher than Hispanics or whites in the refinancing market. African-American and Hispanic households are observed to have lower levels of educational attainment which are correlated with higher interest rates particularly in the conventional market.

Hispanic Homeownership Seminar - June 1, Summary African-Americans generally appear to be in lower quality housing units which are correlated with higher interest rates. Hispanics tend to have relatively high loan to value ratios on their 1st mortgages compared to other households (particularly whites) Hispanics and African-Americans are slightly less likely to use junior mortgages and substantially less likely to use home equity loans than white households. Hispanics have relatively high debt levels when they do use secondary financing, but African-Americans interest rates tend to be substantially higher than the other two groups in this market.