The Wealth of Young Low- and Moderate-Income Homeowners through the Great Recession

Background/Purpose: Homeownership has long been seen as a life goal for young American households and as a mechanism for building wealth and improving financial stability over the lifespan. Following the housing downturn and Great Recession, questions have arisen concerning whether homeownership remains a goal for the younger generation and whether homeownership is still a mechanism for wealth creation (Herbert & Belsky, 2008; Belsky, 2013). Despite these concerns, there has been little empirical research focused specifically on the financial outcomes of young, low- and moderate-income (LMI) homeowners. Upheaval in the housing market has potentially led to less economic stability for vulnerable populations and is thus an important subject for social work research. Gaining an improved understanding of the impact of homeownership on household finances, especially for young, LMI individuals, can help social workers better assist households seeking a sound financial future. Social workers currently often lack the understanding and confidence to work with families on complex financial issues (Despard & Chowa, 2010; Sherraden, 2013).

Method: Using data from the national Community Advantage Program (CAP) panel survey of LMI homeowners and a matched set of renters, this paper examines the effects of homeownership on net worth. The work explores changes in net worth from 2005 to 2012 among young homeowners, those under 40 at baseline, relative to older homeowners and young renters and includes data from roughly 1,400 participants over those seven years, which generally align with the years before, during, and after the housing market collapse. We use propensity score weighted regression, which corrects for selection bias between homeowners and renters, to test for the impact of homeownership on changes in net worth. A number of covariates, including education level, marital status, and income, are included in the models as controls. We further disentangle changes in net worth by examining changes in housing- and non-housing-related debt and assets.

Results: On average, households in the study gained roughly $9,000 in net worth between 2005 and 2012. The regression results reveal that, after correcting for observable differences between homeowners and renters, homeowners saw lower growth in net worth (p<.01). Younger participants also saw lower growth in net worth relative to the older cohort (p<.01). However, we find that young homeowners fared better on average compared to young renters (p<.1), which suggests that the age of the homeowner plays an important moderating role.

Conclusion/Implications: As the social work field seeks to help families navigate the increasingly complex and risky financial world, this work provides a more nuanced understanding of the effects of the housing downturn and its impact on household balance sheets. The results are consistent with previous research showing significant losses in net worth during the Great Recession, especially for homeowners. However, concerns about younger homeowners being particularly harmed by the downturn are not supported by this analysis. Homeownership still appears to be a good financial choice for young households seeking to grow assets.