Black homeownership faces new obstacles in crowded property market

In a housing market with mortgage rates hovering at 5 percent and real estate investment trusts trying to cash in on rising rents, homeownership is becoming increasingly difficult for black Americans, who have long faced discriminatory practices.

“The housing gap” between ownership by white and black households in the US is “roughly the largest it has ever been,” said Mike Fratantoni, an economist with the trade group Mortgage Bankers Association, in an interview.

“There are many reasons for this,” he added. “But a big one is the level of household wealth, which is really a huge gap right now. Whether it’s making the down payment or keeping the payments sustainable, we see a downside.”

According to data from the National Association of Realtors (NAR), the overall home ownership rate in the US reached 65 percent in 2020, a record 1.3 point increase from 2019, when 2.6 million new households owned their own homes. But the homeownership rate for black Americans of 43.4 percent is actually lower than it was a decade ago.

“Housing affordability and low inventory have made home ownership more difficult for all buyers, but even more so for Black Americans,” Jessica Lautz, NAR vice president of demographics and behavioral insights, wrote in a statement.

Conversely, home ownership is 72 percent for white Americans, 62 percent for Asian Americans, and 51 percent for Hispanic Americans. All three demographics hit decade-high homeownership highs in 2020, with the rate for Hispanics setting a record and surpassing 50 percent for the first time.

In New York City, black homeowner households declined more than 13 percent from 2002 to 2017, with black homebuyers paying nearly $7,000 more in closing fees than white buyers, according to a JPMorgan Chase-funded analysis.

“Because of the racial wealth gap, black homebuyers also have lower initial purchase payments, on average,” the company said in a report. “Combined with higher closing costs, this means that black homebuyers are entering homeownership with significantly fewer financial assets than homeowners of other races.”

Five percent interest on the popular 30-year fixed-rate mortgage, a 10-year high, is just the latest hurdle for black prospective homebuyers.

Over the past year, low housing stocks and rising demand as the pandemic recovers have attracted institutional investors, often able to price out single-family homes, to the market.

Real estate investors bought a record-breaking 18.4 percent of homes sold in the U.S. in the final quarter of 2021, up from 12.6 percent a year earlier, according to data from publicly traded real estate broker Redfin.

The company estimates that more than 75 percent of all homes purchased by investors in the fourth quarter of 2021 were prepaid with cash, which real estate experts say may be more attractive to home sellers than long-term mortgages.

“While record-high home prices are problematic for individual homebuyers, they’re one reason investor demand is stronger than ever,” Redfin economist Sheharyar Bokhari wrote in a statement. “Investors chase rising prices because rent payments are also soaring, which incentivizes investors who plan to rent out the homes they buy. The tight supply is also a benefit for landlords, as many people who can’t find a home to buy are forced to rent instead. Also, investors flipping houses see the potential to make a big profit as house prices rise.”

Investor market share tends to be highest in certain metro areas, with the highest concentrations in Atlanta, Charlotte, NC, and Jacksonville, Florida.

In Florida, where many with retirement homes and second homes take advantage of pleasant year-round weather, real estate experts say preferring cash payments can be particularly detrimental to black Americans.

“During the last real estate cycle, during the bubble, all the evidence I saw showed that African Americans were badly affected due to the loss of their home values, and they were disproportionately affected by foreclosures,” Brad O’Connor, economist at the Florida trade group Realtors said in a phone interview. “When you have an affordability issue right now, it’s hard to compete against cash buyers.”

High prices and rates are driving down home sales both in Florida and nationwide.

A nationwide survey by the Mortgage Bankers Association (MBA) shows “less than expected buying activity” for this time of year, consistent with the 7.5 percent drop in March closing sales observed by O’Connor in Florida.

“As the stock of homes for sale remains low and house prices rise, higher mortgage rates have begun to have a greater impact on affordability,” concluded a recent MBA assessment. The MBA’s 2023 financial forecast shows that interest rates will remain around 5 percent for most of the year.

Real estate experts say black Americans face systemic problems that have historically stood in the way of homeownership, including a lack of intergenerational wealth that can be used for lump-sum down payments, unfairly managed credit scores and an overweight of debt.

They also point out that it has failed to recover from the 2008 housing crisis, which disproportionately affected black communities and other communities of color.

In terms of policy fixes to help home buyers in the current market, Fratantoni says policymakers could address both the supply and demand sides of the market, with additional incentives for homebuilders to build more units and a reduction in mortgage insurance premiums on tuition costs for buyers.

Fair housing advocates say adverse social practices that underlie commercial and regulatory norms also need to be addressed.

“We must recognize that the homeownership rate for people of color is lower today than it was over 50 years ago, before the Fair Housing Act was passed,” Maureen Yap, attorney for the National Fair Housing Alliance, said earlier this month during a campaign against redlining, a term that refers to the bureaucratic process of denying minority groups access to credit and other financial benefits.

“Redlining prevents communities of color from getting fair access to credit and is one of the main drivers of the homeownership gap,” she added. “It will take coordinated and concerted efforts to undo centuries of discrimination in financial services, including the redlining of communities of color.”

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