UW News

April 12, 2004

American dream of home ownership turns sour for many low-income buyers

The American dream of buying and owning a home all too frequently doesn’t have a happy ending for many low-income families. Despite federal government policies encouraging home ownership among minority and low-income families, more than half of them left their houses and returned to renting within five years, according to a new study by a University of Washington researcher. One third of the families returned to renting in the first two years.

“Home ownership is not a cure-all for low income families without a living-wage job and wage progression. Without those two things, it is not sustainable,” said Carolina Katz Reid, who did the research for her doctoral dissertation in geography, which she just completed.

“The evidence suggests that low-income families are particularly vulnerable to losing their homes because they are more likely to lose their jobs and they have few resources to fall back on. Mortgage payments for many of these families take 50 percent or more of their monthly income. An unexpected drop in income or increase in expenses can make it impossible for them to meet those payments.”

Reid’s research also indicated that low-income minority families who managed to hold on to their homes for at least 10 years tended to realize smaller average property value increases than did middle- and high-income whites. Low-income minority families averaged a 30 percent increase in house values over that time period, while middle- and upper-income whites enjoyed a 60 percent jump.

In addition, she found that buying a house does not necessarily mean an improvement in neighborhood quality because most low-income families bought homes in areas similar to where they were renting. Low-income minorities, on average, tended to buy into better neighborhoods, but these areas continued to be significantly more disadvantaged, marked by elevated levels of poverty, high school dropouts and unemployment compared to low-income whites. Reid said that more than half of low-income minority homeowners bought homes in such “distressed” neighborhoods.

Data for her research was drawn from the Panel Study on Income Dynamics conducted by the Institute for Social Research at the University of Michigan. Started in 1968, it collects information from a broad range of 5,000 American families. Reid also conducted in-depth interviews with 55 low-income homeowners, about half of them recent immigrants, living in Seattle.

Reid’s research indicated that very few low-income families that return to renting ever buy another house, while the majority of middle- and upper-income families eventually bought again. Middle and upper-income families often sold their homes when they relocated to another area because of employment opportunities. Many initially rented before buying a home in the new community. For low-income families, however, the shift away from owning a house tended to be permanent, caused by life-changing events such as unemployment or divorce, and the associated loss of a wage earner.

Reid’s interviews with low-income Seattle families showed that most relied on multiple wage earners whose pooled salaries enabled them to buy a home. Immigrant families in particular had three or four members (both parents and one or two grandparents or both parents and teenage children) working low-paying jobs or part-time jobs to support a house payment.

Thirty of the Seattle families were affected by the American economic downturn and one or more members lost full- or part-time jobs, or experienced cuts in hours or benefits. Yet, Reid said, these families were buying as much of a house as lenders qualified them for.

“It was shocking to see how much they were paying in mortgage payments,” she said. “If a $250,000 mortgage was available they’d take it. Thirty out of the 55 families were paying more than 50 percent of their combined monthly income on their mortgage payments.”

“Home ownership is an important dream in our society,” said Reid. “But the goal should be to keep families in their own homes and that will require more social support. At the same time, while there is a tendency to move low-income families toward home ownership, there is still a real need for rental assistance and subsidies. Ownership is viewed as a way of repairing neighborhoods and lifting people out of poverty, but what is needed is a greater range of options to meet peoples’ needs.”

For more information, contact Reid on her cell phone at (206) 390-1756 or at cmkatz@u.washington.edu to set up an interview. Note: she is presently living in Malaysia and there is a 16-hour time difference between there and Seattle.