Minority homebuyers face hurdles
Data: Ownership rates for blacks, Hispanics far below that of whites
Darlene Easley doubted she could ever buy another home.
In 2014, the 53-year-old AfricanAmerican social worker lost her previous house to foreclosure after she went bankrupt over $245,000 in medical bills from her breast cancer treatment.
“I tried to hold onto the home, the car, but the bills kept piling up,” said Easley, who also was raising her teenage daughter on her own at the time. “I was paying what I could, but everything spiraled out of control.”
Fast forward to August 2017, when Easley closed on a three-bedroom ranch home in Canal Winchester, Ohio. It wasn’t without work.
Easley got on a budget, paid down debt, improved her credit score and compromised on location. “The same house would have been probably $30,000 higher on the other side of town,” she said. “I had to go where my liking was and where my finances were.”
Easley’s challenges echo what many minorities face as they chase the American Dream of owning a home. This year was no exception, according to a survey from the National Association of Realtors.
All homebuyers faced a challenging housing market as prices and interest rates rose and affordability declined. But larger shares of black and Hispanic buyers had to sur- mount other obstacles – such as lower incomes, more student debt and mortgage approval troubles – beyond what their white counterparts faced, according to NAR data.
The result? Homeownership rates of black and Hispanic buyers remain far below that of non-Hispanic whites, with black homeownership suffering the most since the Great Recession. Over time, this hurts these groups’ ability to build wealth that can be tapped later in life or passed to the next generation.
“Where you live determines where your children can go to school,” said Lebaron Sims, senior research manager at Prosperity Now, a Washington, D.C.-based nonprofit that advocates for low-income communities. The homeownership rate for whites is 72.9 percent, or 2.7 percent below the rate when the Great Recession began in December 2007. The Hispanic rate is 48.5 percent, or 3.9 percent lower. The black homeownership rate is 47.7 percent, or 12.8 percent off.
What are the obstacles?
The disparity in the homeownership rates has been a longstanding problem, advocates said. “What we see today is the result of historical policies over the past several decades,” from redlining to the foreclo-
sure crisis that disproportionately hit minorities due to predatory lending, said Jhumpa Bhattacharya, vice president of programs and strategy at Insight Center for Community Economic Development, a national research and economic justice organization in Oakland, California. The NAR’s data pinpoints which factors proved most challenging for buyers this year.
❚ Income: The median income of black homebuyers was $82,140, or 10.5 percent lower than the median for white buyers at $91,820. The difference can make it harder to save for a down payment. For instance, Easley’s annual salary was $51,000, and she relied on a down payment gift from her twin sister.
Hispanic buyers fared a bit better with incomes 4.5 percent lower than white buyers, according to the NAR. To compensate, these minorities bought lower-priced homes. Part of the income discrepancy is because black and Hispanic buyers are more likely to be firsttimer buyers, a group with statistically lower incomes, versus white homebuyers. But that alone misses a larger context. Minority buyers, especially blacks, were also hit harder by the Great Recession, hurting their earning power going forward. The unemployment rate for blacks soared to 16.8 percent following the financial crisis, while the highest level for whites was 9.2 percent. The unemployment rate for Hispanics hit a high of 13 percent during the recession.
❚ Student debt: Paying college loans is a big burden for homebuyers. It’s harder to save for a down payment and can make qualifying for a mortgage more difficult. It can also delay a purchase as people pay down their debt. And it’s an obstacle that’s more common among black buyers.
Forty-three percent of black homebuyers had student debt, compared with only 25 percent for Hispanics and
23 percent for whites, according to the NAR. The median amount was $39,000, or 50 percent more than the median amount among whites, and 95 percent higher than the total debt for Hispanics.
❚ Mortgage woes: Black and Hispanic buyers were also more likely to be rejected by a mortgage lender than white borrowers. Part of this reflects the disparity in credit scores among these groups. Larger portions of blacks and Latinos have low credit scores or no credit history at all versus whites.
Another issue is the decline in home loans backed by the Federal Housing Administration, used extensively by black and Hispanic communities. These government-backed loans require smaller down payments and have more lenient credit standards. But since 2010, the number of FHA loans originated by lenders has fallen, disproportionately hurting these homebuyers.
Possible solutions
To increase homeownership rates among minorities requires a multiprong strategy using short- and long-term solutions. One possibility is offering ongoing financial counseling for new homeowners so they can weather tough economic times.
❚ Bigger picture for credit: Lenders can also adopt alternative methods of evaluating creditworthiness besides just credit scores, to expand access to mortgages. But there must be consumer protections in place to keep lenders from targeting groups with high-cost, risky loans like in the run-up to the last housing crash.
❚ Grant programs: There can also be better education about down payment assistance or grant programs that states, municipalities and nonprofits offer first-time homebuyers. “Money is left on the table every year because no one knows about these,” said McCargo of the Urban Institute.
But historical issues such as discrimination and economic inequality can’t be solved with simple fixes. Advocates say more capital must be invested in minority communities to counter the lingering effects of redlining and help create better paying jobs, schools and neighborhoods. Progress has started in Hispanic communities. The homeownership rate for Hispanics has recovered the most since its post-recession low among all groups.
“We’ve seen across the board general improvements in Hispanic and Latino households: higher earnings, better financial stability, lower rates of underbanked and unbanked households, higher job quality metrics overall,” Sims said. “It has been the biggest surprise.”