Black homeownership faces new obstacles in crowded property market

In a housing market with mortgage rates hitting 5 percent and real estate investment companies looking to take advantage of surging rent prices, homeownership is becoming increasingly difficult for Black Americans, who have long faced discriminatory practices.

“The housing gap” between white and Black household ownership in the U.S. is “about as wide as it’s ever been,” Mike Fratantoni, economist with the Mortgage Bankers Association trade group, said in an interview. 

“There’s lots of reasons for that,” he added. “But a big one is the level of household wealth, which is really an enormous gulf right now. Whether it’s coming up with the down payment or keeping payments sustainable, we’re seeing there’s a disadvantage.” 

According to data from the National Association of Realtors (NAR), the overall U.S. homeownership rate hit 65 percent in 2020, up a record 1.3 points from 2019 with 2.6 million new homeowning households. 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 has made it more challenging for all buyers to enter into home ownership, but even more so for Black Americans,” Jessica Lautz, NAR vice president of demographics and behavioral insights, wrote in a statement.

Conversely, homeownership for white Americans is 72 percent, while it’s 62 percent for Asian Americans and 51 percent for Hispanic Americans. All three demographics reached decadelong highs in homeownership in 2020, with the rate for Hispanic Americans setting a record and extending past 50 percent for the first time.

In New York City from 2002 to 2017, Black homeowner households decreased by more than 13 percent, with Black home buyers paying nearly $7,000 more in closing fees than white purchasers, according to an analysis funded by JPMorgan Chase.

“Because of the racial wealth gap, Black home buyers also have lower starting down payments, on average, when they purchase,” the company said in a report. “That, in combination with higher closing costs, means Black home buyers begin home ownership with considerably fewer financial assets than homeowners of other races.”

Five percent interest rates, representing a 10-year high, on the popular 30-year fixed-rate mortgage are only the latest hurdle for Black prospective homebuyers. 

During the last year, low housing inventories and burgeoning demand as part of the recovery from the pandemic have lured institutional investors, who are often able to price out single families, into the market.

Real estate investors bought a record 18.4 percent of the homes that were sold in the U.S. during the last quarter of 2021, up from 12.6 percent the previous year, according to data from publicly traded real estate brokerage Redfin.

The company estimated that more than 75 percent of all homes purchased by investors in the fourth quarter of 2021 were paid for with cash up front, which real estate experts say can be more appealing to home sellers than long-term mortgages.

“While record-high home prices are problematic for individual homebuyers, they’re one reason why investor demand is stronger than ever,” Redfin economist Sheharyar Bokhari wrote in a statement. “Investors are chasing rising prices because rental payments are also skyrocketing, incentivizing investors who plan to rent out the homes they buy. The supply shortage is also an advantage for landlords, as many people who can’t find a home to buy are forced to rent instead. Plus, investors who ‘flip’ homes see potential to turn a big profit as home prices soar.”

Market share for investors tends to be highest in specific metropolitan areas, with the highest concentrations in Atlanta, Charlotte, N.C., and Jacksonville, Fla.

In Florida, where many with retirement homes and secondary properties take advantage of comfortable weather year-round, real estate professionals say the preference for cash payments can be particularly disadvantageous to Black Americans.

“During the last housing cycle, during the bubble, all the evidence I’ve seen showed that African Americans were impacted in a heavy way because of the loss of their home values, and they were disproportionately affected by foreclosures,” Brad O’Connor, economist with trade group Florida Realtors, said in a phone interview. “If you’ve got an affordability issue right now, it’s hard to compete against cash buyers.”

High prices and rates are translating into a dip in home sales both in Florida and nationwide. 

A national survey from the Mortgage Bankers Association (MBA) shows “lower-than-expected purchases activity” for this time of year, consistent with the 7.5 percent dip in closing sales for March observed by O’Connor in Florida.

“As for-sale housing inventory remains low, and home-price appreciation is elevated, higher mortgage rates have started to more significantly impact affordability,” a recent MBA assessment concluded. The financial forecast for 2023 from the MBA shows interest rates to continuing to hover around 5 percent for most of the year.

Real estate experts say Black Americans face systemic issues that have gotten in the way of homeownership in the past, including a lack of intergenerational wealth that can be used to make lump-sum down payments, unfairly administered credit scoring and a preponderance of debt.

They also point to a failure to recover from the 2008 housing crisis, which disproportionately affected Black communities and other communities of color.

As for policy fixes to help home buyers in the current market, Fratantoni says policymakers could provide relief on both the supply and demand sides of the market, with additional incentives for builders to construct more units and a reduction in mortgage insurance premiums to lesson costs for buyers.

Fair housing advocates say prejudicial social practices that underlie commercial and regulatory norms must also be addressed.

“We must recognize that the homeownership rate for people of color is lower today that it was over 50 years ago, before passage of the Fair Housing Act,” Maureen Yap, a lawyer with 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 gaining fair access to credit and is one of the key drivers of the homeownership gap,” she added. “It will take coordinated and concerted efforts to reverse centuries of discrimination in financial services, including the redlining of communities of color.”