The Determinants of Home Price Appreciation Among Community Reinvestment Homeowners

Abstract

Homeownership is considered an effective wealth creation mechanism for low-income households. This study examines the appreciation of homes purchased with community reinvestment loans in a national pilot in the USA called the Community Advantage Program (CAP). Homes purchased between 1998 and 2002 are found to have appreciated at a median annual rate of 5.4% between the time of purchase and spring 2003. This is less than the national house price appreciation index of 7.0% (covering 1998–2003) but higher than other types of investments such as the Dow Jones Index (2.78% annual growth rate) and the average rate on a 6-month CD (4.34%) over the same time period. The median increase in net housing wealth of the Community Advantage homeowners is $17 492. Returns have been particularly impressive for the lowest-income borrowers. Borrowers with less than $20 000 in annual household income at the time of purchase had a median down-payment of $1790 and have experienced a median equity increase of $24 724. Price and equity appreciation rates for African Americans are solid, but are about 10% lower than for whites.