Description:
This paper identifies an important mechanism through which the homeownership gap among racial groups can be narrowed. The effects of skills achieved in early adulthood—as measured by the Armed Forces Qualifying Test (AFQT) score, the Rotter score, and a Social skill score based on Demings (2017)—are shown to affect education, income, and homeownership levels achieved later in life. We use mediation analysis to identify both the direct and indirect effects of these scores on homeownership. We show that the AFQT score measuring cognitive skills not only has direct effects on the homeownership rate, but even larger indirect effects through the mediator variables, education, and income. AFQT scores in early adulthood are shown to be highly predictive of homeownership outcomes, explaining roughly one-quarter to one-third of the disparate outcomes between White, Black, and Hispanic households. We also examine the degree to which the AFQT, Rotter, and Social scores explain variation in homeownership rates over an individual’s life cycle. The findings suggest that reducing disparities in educational outcomes would meaningfully contribute to reducing minority homeownership gaps