By Sarah Friedmann
While homeownership is generally increasing for many Americans, for others, it has remained out of reach. Indeed, systemic racial injustice and inequality of opportunity has so stagnated homeownership growth rates among African Americans that the number of blacks who owned homes in 2018 was essentially the same as the number who owned them in the late 1960’s – when it was legal to discriminate against potential homebuyers due to their race. Unfortunately, a new report from the Washington Post revealed that this trend seems to be continuing in 2019. As a result, more proactive steps need to be taken to ensure that African Americans are not pushed out of homeownership in the United States.
Fair Housing Remains an Issue
The Fair Housing Act of 1968 finally made discriminatory housing practices illegal in the United States, barring the act of blocking people from renting or buying property due to their membership in a protected class, including race. After the passage of the Fair Housing Act, homeownership among African Americans slowly increased, though a large gap between white and black homeownership persisted. Since the Fair Housing Act was enacted, the highest rate of African American homeownership in the United States occurred in 2004-2005, during the height of the housing bubble, Curbed reported. At this time, the black homeownership rate was around 50 percent. By comparison, in 2004-2005 homeownership among whites was around 75 percent and overall American homeownership was approximately 69 percent.
However, after the financial crisis of 2007-2008, black homeownership steadily declined. Curbed noted that, in 2017, only 42.3 percent of African Americans owned homes in the United States — a number that reflects a nearly identical homeownership level to 1970, when the Fair Housing Act was just two years old (at that time, 41.6 percent of African Americans owned homes). This present day drop in homeownership rates among African Americans is even more jarring considering that both Latinos and whites are seeing small but steady gains in homeownership, a 2017 Harvard University Joint Center for Housing Studies report found. Notably, among the total U.S. population, homeownership was at 63.9 percent in 2017.
What’s Driving the Homeownership Gap?
African Americans were disproportionately affected by the 2007-2008 financial crisis and subprime mortgage lending, which then subsequently affected their future homeownership prospects. As Curbed reported, during the housing bubble, African Americans were almost two and a half times more likely to receive a subprime mortgage (a high interest mortgage that is given to individuals with lower credit scores) than whites, even if they came from similar or wealthier economic backgrounds. Once the subprime mortgage crisis hit and mortgage interest rates shifted, many black families couldn’t afford their mortgage payments.
Indeed, thousands of African Americans lost their homes during the crisis, with Laura Gottesdiener of Mother Jones reporting that foreclosures driven by predatory loans resulted in African Americans losing “just under $200 billion in wealth between 2009 and 2012, bringing the gap between white and black wealth to a staggering 20:1 ratio.” This loss of wealth and related credit implications are still being felt years later, as many African American buyers are refused entry into the housing market because of poor credit ratings and limited access to capital due to losses they experienced during the financial crisis.
A Complex Affordability Crisis
Alanna McCargo, the vice president for housing policy at the Urban Institute in Washington, D.C., sums up the impacts of the financial crisis on African Americans’ homeownership prospects for The Daily Beast. “The foreclosure crisis took a huge toll on African Americans,” McCargo says. “A lot of black people who were homeowners lost their homes during this period … and there’s not been a recovery.”
McCargo stresses that the lingering effects of the financial crisis have helped create a housing affordability crisis that prohibits many would-be African American homebuyers from purchasing property. As McCargo describes to The Daily Beast:
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.
McCargo also adds that skyrocketing rent prices have further contributed to the black homeownership gap. “People are really cost burdened by their rental payments,” which makes it “really hard to save money for a down payment,” she says.
A Broken System
Affordability issues both stem from and are exacerbated by systemic racism and decades of unfair housing practices. For example, African Americans are far less likely to be approved for a conventional mortgage than whites, Reveal reported. While some may argue that this disparity exists because, on average, African Americans tend to have lower credit scores, this perspective ignores the fact that the wealth and housing access disparities between African Americans and whites in the United States has been perpetuated because of racist housing and financial policies.
Moreover, despite some strides in advancing fair housing initiatives, examples of racism in the African American home buying experience still abound. As the Hartford Courant described, when prospective African American homebuyers are looking into purchasing property, they’re likely to encounter some form of discrimination. For example, Reveal reported that black homebuyers are seemingly more likely to undergo significant scrutiny of their financial documents. Discrimination in the home buying process can deter African Americans families from pursuing homeownership, as insufficient purchasing information and unnecessary hurdles convince them that buying a home is not a possibility.
Moreover, some African American families don’t even begin the mortgage application process because they are afraid of being taken advantage of by predatory lending practices, as they were during the financial crisis. “African American people are not applying for home loans,” Ron Cooper, the president of National Association of Real Estate Brokers (NAREB), a professional trade association focused on bringing together minority real estate professionals, said in an interview posted on organization’s website. “We believe that is a problem with the devastation that the downturn caused … African American people were just afraid. They were victimized.”
Removing Barriers to Entry
Closing the African American homeownership gap will require concerted effort from both the government and the real estate industry. For its part, the National Association of REALTORS® (NAR) certainly recognizes this homeownership gap – and has partnered with the (NAREB) and the Urban Institute to “expand research into policies that have and will sustain a growth in African American homeownership.” The three organizations plan to meet regularly in 2019. The NAR also helped promote the NAREB’s 2018 State of Black Homeownership in America report, which conducted lengthy research to examine the drivers of the black homeownership gap.
McCargo, with has interfaced with both the NAR and the NAREB, tells The Daily Beast that she applauds the efforts of the real estate industry to take the black homeownership gap seriously – and thinks that collaboration is essential to helping increase homeownership among African Americans. “Trying to solve this problem going to require lots of people from the [housing] ecosystem to come together and advance this agenda,” she tells The Daily Beast.
Beyond real estate industry prioritization of the issue, one specific way to address housing affordability among African American homebuyers is to provide better access to down payment assistance programs. “I think proactively having [real estate industry professionals] … help connect potential homebuyers to resources for down payment assistance in their local area would go a long way,” McCargo says to The Daily Beast. She also stresses that there are over 25,000 down payment assistance programs in United States, but many of them aren’t being used — and notes that individual real estate professionals can be particularly crucial to raising awareness about these programs. “It’s important to make sure that real estate professionals … do connect in their markets and really work to understand the programs and the unique issues in their market … [to help] more renters become homeowners,” McCargo says.
At the federal policy level, housing experts warn that it’s important to combat any threats to fair housing policies and laws. For example, the current Department of Housing and Urban Development has rolled back several Obama administration fair housing initiatives. As the Washington Post reported, one of these withdrawn rules required communities that received certain types of federal aid to develop desegregation plans. In May 2018, a group of fair housing advocates sued the Trump administration for rescinding the rule, saying that its removal promotes “continuing segregation, lack of housing choice, and unequal opportunity throughout our country,” Color Lines reported.
Housing experts also stress that it’s imperative to ensure that the Federal Housing Administration (FHA) receives continued funding and support in order to promote black homeownership, as the agency provides low down payment lending options, predominately to people of color. “We need to keep our eye on making sure that the FHA is invested in, that they get the appropriations that they need, that it’s modernized [and] … gets the technology that it needs … to help further serve those communities.” McCargo tells The Daily Beast.
There’s certainly not a simple solution to remedying the black homeownership gap, though it’s clear that a multisector approach that addresses that addresses both causes and effects of systemic racism is necessary. The real estate industry recognizes that it’s going to take a team effort to ensure that homeownership is a reality for more African Americans — and it’s working to tackle this challenge head on.