The U.S. Census Bureau released its second quarter 2019 homeownership rates which listed the Black homeownership rate at 40.6%, nearly unchanged from 50 years ago, when the federal Fair Housing Act banned racial discrimination in the housing sector. In comparison, the non-Hispanic White homeowner rate was 73.1%, representing more than a 30% gap.
This low level of homeownership drives another Black/White Gap, the one surrounding wealth. It’s a true but sobering fact of how far we are from equality.
The wealth gap measures the difference between the median wealth of Blacks versus the median wealth of Whites. Almost all studies calculate wealth by adding up total assets (e.g., cash, retirement accounts, home, etc.) then subtracting liabilities (e.g., credit card debt, student loans, mortgage, etc.) The resulting figure is your net worth.
According to the New York Times, for every $100 in White family wealth, Black families hold just $5.04.
Net worth is probably the most important measure of overall financial health. It matters more than income, because jobs can disappear in a flash, and your wealth is what can help tide you over in the lean times. Since net worth is so closely tied to home ownership, it’s not surprising the net worth of Black Americans is also on the decline.
For most Americans, the value of their home is the biggest contributor to their net worth, that’s because equity (worth) gained often accrues with you doing little more than paying your monthly note. You don’t have to pinch and save, or figure out how to safely manipulate the stock market. In most cases – but not always — your home is sitting there growing in value and growing your net worth.
WHY IS BLACK HOMEOWNERSHIP DECLINING?
There’s a number of factors, some based on current and most recent market conditions and others based on Black values and cultural systems.
We would be remiss not to mention the Recession of 2009-2012 and its aftermath. Blacks were targeted by some large lenders (banks) for subprime loans – even when they qualified for prime loans. This allowed lending institutions to charge them higher rates than their White counterparts for similar loans. These and other deceptive practices forced many African Americans into foreclosure. Many African Americans remain hesitant to reenter the market after seeing their parents, family members or friends lose their home.
The research also indicates that millennials, especially those of color, are carrying tremendous debt as a result of student loans. Typically this age group, in the mid-twenties to late thirties, would be prime first-time homebuyers. While some in this age group are still struggling to pay off their college, others who have finished their college obligations have not been able to save up enough money for a down payment.
African Americans in their thirties lag the most in homeownership—which translates into risks of housing instability for their children. Only 20% of African Americans aged 30 to 34 in 2016 owned their homes, compared with 34% in 2000. The loss was almost as bad for 35-to-39-year-olds; their homeownership rate dropped from 4% to 29% from 2000 to 2016.
Affordable home prices have gone up in markets where Blacks live and finding affordable, entry-level homes as a first-time home buyer is really hard right now. Access to affordable mortgages and access to credit in general has been a big barrier. As the housing crisis happened, credit got tighter, so lenders weren’t lending as much to lower credit score borrowers and lower-income borrowers. That had a disproportionate impact on Black homeownership.
Finally, there are some cultural issues at work. African Americans often prefer to navigate financial decisions through relationships. Research shows Blacks value “respect, trust, safety, security and a sense of belonging.” Financial institutions do not often build this trust, so African Americans use social networks to navigate unfamiliar. If those in your social and trusted group have never owned a home and/or don’t value homeownership, the advice you receive may not guide you toward homeownership.
African Americans of all incomes are much less likely to have grown up in a home owning family, and have deep experiences with financial challenges that shape their current practices.
A recent research study found nearly half of African Americans in a financial empowerment program anticipated they will face racial discrimination in home lending; with two-thirds reporting they had experienced racial discrimination in financial institutions or housing search. Too often bad experiences with financial institutions keep African Americans from even trying to get a mortgage.
A survey of the same group found many African Americans’ fear of credit is a barrier, with one third believing their credit will prevent them from buying a home; but most do not know their credit score.
While homeownership rates among African Americans is declining, there are several ways to increase it. These include but are by no means limited to marketing safe financial products to the Black community, dispelling myths that high down payments and perfect credit scores are required to buy a home, working with lenders to earn back the trust of the Black community, addressing debilitating impact of rising student loan burdens, but also by educating potential buyers about the process. That’s exactly what this special section hopes to begin to do.
