‘The incredible affordability challenges of the last year have hit minority home buyers’: Black American homeownership rates languish far below 50%
Homeownership rates have risen gradually across all racial and ethnic groups over the past decade since reaching historic lows in 2015 — but data show Black homeowners continue to lag well behind their peers, the National Association of Realtors said in a new report Thursday.
In 2021, 44% of Black Americans owned their homes, compared to about 73% of white Americans, nearly 63% of Asian Americans, and almost 51% of Hispanic Americans — who surpassed the 50% mark for the first time after large homeownership gains in the last 10 years. What’s more, the gap between Black and white homeownership rates has worsened since 2011, hitting 29% after a 26% gap a decade ago.
And the disparity may grow worse still.
“Unfortunately, the incredible affordability challenges of the last year have hit minority home buyers more than white buyers,” Jessica Lautz, NAR’s deputy chief economist and vice president of research, said in a statement. “Black buyers are more likely to be first-time buyers, who are more sensitive to changes in mortgage interest rates, while White buyers are more likely to have housing equity to rely on as they make a housing trade.”
Higher mortgage rates have pushed up typical monthly payments for first-time buyers, and housing affordability reached historic lows last year, the National Association of Realtors said in its report. At the same time, rent increases may be making it increasingly difficult to save for future homeownership: 54% of Black renters spend more than 30% of their income on rent, and about 30% devote more than half of their pay toward housing, the National Association of Realtors said.
“While rental cost is expected to rise even further in 2023, it will be even more difficult for Black renter households to save for a down payment for a home purchase,” the NAR said in its report.
Just between April 2021 and April 2022, as interest rates rose by 2 percentage points to hit 4.98%, the number of Black renter households that could afford to buy a median-priced home in the U.S. slid by more than half, with monthly payments on a median-priced home up by several hundred dollars, according to Raheem Hanifa of Harvard University’s Joint Center for Housing Studies.
“16% of Black Americans drew on their 401(k) and pension funds to cover their down payments — more than any other group. ”
The average contract rate on a 30-year mortgage for homes selling for $726,000 or less was 6.71% in the week ending Feb. 24, according to the Mortgage Bankers Association. After comparing the qualifying income to purchase a typical home to the median income of renter households, the National Association of Realtors estimated that only 9% of Black renters could afford to buy a median-priced home today, compared to 17% of white renters.
Affordability challenges aside, Black Americans also continue to face difficulties in getting access to a loan to buy a home and still have “the highest denial rates for purchase and refinance loans,” the National Association of Realtors said.
“We see that even just beyond all the affordability challenges, specifically Black and Hispanic homebuyers are facing some extra challenges in obtaining a mortgage,” Brandi Snowden, the director of member and consumer survey research at the National Association of Realtors, told MarketWatch. “Based on Home Mortgage Disclosure Act data, 20% of Black Americans and 15% of Hispanic Americans have had their loan applications denied, and that’s compared to just 11% of white Americans and 10% of Asian applicants.”
For existing Black homeowners, meanwhile, property valuations in neighborhoods of color are typically lower compared to majority-white areas, though those differences could be driven by a number of factors, the National Association Realtors said. Nonetheless, Federal Housing Finance Agency “data suggests that minority groups in some parts of the country may experience a higher rate of home undervaluation (appraisal below the contract value and median appraised value) than others.”
Based on data from the National Association of Realtors’ most recent Profile on Home Buyers and Sellers report, the organization noted that Black Americans made up just 3% of recent home buyers in a survey conducted between July 2021 and June 2022, while white Americans made up 88% of recent buyers. And when asked about the discrimination they’d faced, 39% of Black buyers reported discrimination in the appraisal process, according to the National Association of Realtors.
Additionally, 16% of Black Americans drew on their 401(k) and pension funds to cover their down payments — more than any other group.
Still, there were some bright spots in the National Association of Realtors’ report: Black homeownership rates remain above 50% in states including Mississippi, South Carolina, Alabama and Delaware. And Asian Americans and Hispanic Americans “experienced the biggest homeownership rate gains over the last decade,” with Asian-American homeownership reaching an all-time high.
Aarthi Swaminathan contributed to this report.
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