This paper examines the impact of the combined U.S. state and federal mortgage interest deduction (MID) on homeownership attainment, using data from 1984 to 2007 and exploiting variation in the subsidy arising from changes in the MID within and across states over time. We test whether capitalization of the MID into house prices offsets the positive effect on homeownership. We find that the MID boosts homeownership attainment only of higher income households in less tightly regulated housing markets. In more restrictive places an adverse effect exists. The MID is an ineffective policy to promote homeownership and improve social welfare.JEL classification: H22, H24, H71, R21, R31, R52

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Households assume substantial house‐price risk when purchasing a home. This article investigates the effect of such risk on families' housing decisions. Using a repeat cross‐section of household data from the American Housing Survey spanning a 10‐year period and measures of expected return and time‐varying risk, I find that families are less likely to own and housing demand is reduced during episodes of relatively high, anticipated house‐price volatility. The impact is greater on low‐ and moderate‐income families and first‐time homeowners than other groups. The results hold implications for policies designed to assist homeowners in lessening the risk they bear. (JEL R21, D12, D84)

ABSTRACT. This paper examines the extent to which populations experiencing low homeownership rates in the U.S. also experience high homeownership exit rates. We determine whether low-income Hispanic and black households that achieve homeownership are as likely as white and high-income households to sustain it. Using the Panel Study of Income Dynamics spanning the years 1970-2005, we find that low-income homeowners consistently have higher homeownership exit rates, Hispanic households have higher raw exit rates prior to but not subsequent to 1997, and a black/white sustainability gap appears to arise post-1997.