For many black households, the housing crisis never ended. While 73.1% of white Americans owned homes as of the second quarter of 2019, a record low of 40.6% of black Americans had achieved homeownership and 46.6% of Hispanic Americans.
The resulting 32.5 percentage-point gap in homeownership between black and white Americans is 3.6 points wider than it was at the beginning of 2010, according to a new report by real estate brokerage Redfin.
“With higher unemployment rates and less wealth to begin with, black Americans were less able to buy homes even when prices were at their lowest point, meaning many missed out on opportunities to build wealth and put down roots in their communities through homeownership,” said Redfin chief economist Daryl Fairweather.
The hard-won gains that black homeowners made after the Fair Housing Act was passed in 1968 have been virtually erased. This trend will affect the retirement outlook for black Americans and their ability to pass wealth to the next generation of black home buyers, according to a housing report by the Urban Institute.
“Unless this setback to black homeownership is addressed, black families will rent for more years before homeownership than they did a few years ago,” the report stated. “This will shrink the landscape of housing choices available to black families, increase their exposure to displacement, and delay or close off a key wealth-building mechanism. All three of these outcomes will widen the inequality that underlies so many current struggles.”
Here are five facts that underscore the current crisis in black homeownership.
Student loan debt weighs heavily on black graduates. Many families see education as a ladder to success, but student debt can contribute to the homeownership gap. Many black Millennials find themselves drowning in student debt despite making regular payments, according to a July report by the Center for Responsible Lending, which noted that because of the racial wealth and income gaps, black students face challenges paying for higher education, whether or not they complete their degree.
The report states that for black borrowers who entered higher education in 2003–2004 as undergraduates, almost 49% had defaulted by 2016. Up to 70% of this cohort is projected to default by 2024.
Renting the American dream. The foreclosure crisis caused a historic number of owners to lose their homes, becoming renters involuntarily, according to the Brookings Institution, a non-profit public policy organization.
“Homeownership offers some financial advantages over renting,” a February Brookings report states, adding that “making regular payments on an amortizing mortgage is a forced savings mechanism, meaning that homeowners are paying down debt and accumulating equity with each payment. By contrast, rent payments only cover the consumption value of housing and do not accumulate savings.”
Black borrowers are also less likely to meet the traditional credit standards necessary to qualify for a mortgage. However, rental payments can now be reported to the three credit reporting agencies, Experian, Equifax and TransUnion. The newest credit scoring models use rental payment data when calculating credit scores, according to an Experian report, which explains how to get the reporting process started.
If recent housing trends continue, an Urban Institute report states that black Americans born between 1965 and 1975 will likely become “part of the first generation since those born before 1900 to reach retirement age with more renters than homeowners among their community.”
The report adds that “reforms are needed that provide more affordable rental housing and more plentiful and secure access to homeownership.”
Ralph McLaughlin, deputy chief economist at CoreLogic, a real estate and data analytics provider, said the fact that blacks typically have higher rental rates than whites also has dire implications for black homeownership.
“African American households tend to be overwhelmingly renters,” he said. “When you couple a shortage of homes on the owner-occupancy side with a rental market that up until now has been pretty robust, it makes it very difficult to save for a down payment if your rents are going up faster than your incomes.”
Starter homes are scarce. Prices for the most affordable homes around the country are rising faster than they are for the most expensive homes.
“People who have been boxed out of homeownership, and who are finally starting to feel that the economy has reached them, it’s reaching them all at the same time,” said Fairweather. “There’s a lot of competition for starter homes. That’s why prices have gone up so much for those homes.”
Home equity gap widens. In part as a result of the inequality in homeownership and home equity gains, black Americans have seen their median net worth decline in the past decade while for white Americans it rose by double digits, according to Redfin. The median net worth for blacks dropped 2.8% to $17,100 in 2016 from $17,600 in 2010. That leaves the typical black American more than $10,000 short of the 20% down payment ($27,980) likely needed to purchase a median-priced home in Detroit, for example, one of the most affordable major housing markets in the nation.
According to a report by the Urban Institute, “Black homebuyers bought homes at the peak of the bubble at higher rates than whites and Asians, having often been offered subprime loans even when they qualified for prime loans.”
As a consequence, Fairweather said, “The growing racial homeownership gap has widened the wealth gap, as home equity remains one of the most significant wealth-building tools. And now, with higher home prices and tighter lending standards than before the housing crash of 2008, it’s more difficult than ever for minorities to break into the housing market. That’s likely to contribute to growing economic inequality in the U.S.”
Blacks are under-represented in high-paying job sectors. The unemployment rate for black Americans is nearly double the rate for white Americans. McLaughlin believes weak income growth in the black community must be addressed.
“Many of the challenges African American households face in the housing market don’t necessarily have to do with current redlining activity,” he said. “It’s really going to be more broader challenges in not benefiting from an expanding U.S. economy, not benefiting from wage growth, not benefiting from job growth, not benefiting from getting into industries that are growing and that are high paid. African Americans are far less represented in the high-tech sector, which tends to be higher paid than other industries.”
Outreach and counseling. Housing counseling is an effective way to eliminate barriers for black households and prepare them for sustainable homeownership. A new survey by NeighborWorks America finds that while many people are interested in homeownership, minority families, particularly blacks and Hispanics, find that they are missing the financial planning skills and knowledge to become homeowners. NeighborWorks recommends potential home buyers work with a housing counselor who can provide information about down payment assistance programs and get them on the right path.
At the end of 2018, the Urban Institute convened a group of diverse stakeholders to discuss persistent issues that affect black homeownership and how to move from evidence toward action. Five strategic priorities emerged on how to begin to reduce the gap and build bridges toward change: advance policy solutions at the local level; tackle housing supply constraints and affordability; promote an equitable and accessible housing finance system; further outreach and counseling for renters and mortgage-ready Millennials; focus on sustainable homeownership and preservation.