The Black Home Ownership Crisis

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black home ownership symbol

Despite the Fair Housing Act outlawing housing discrimination 50 years ago, black home ownership rates are at an all-time low according to the WSJ, The Washington Post, NAREB, Zillow and the Urban Institute among others.

Ownership is the key to generational wealth and yet black home ownership rates have barely budged.

The Fair Housing Act, signed a week after the passing of Dr Martin Luther King, Jr may have outlawed housing discrimination from a legal standpoint, but there are still covert and overt forms of discrimination being practiced to this day.

According to the U.S. Census Bureau white Americans have a home ownership rate of 73.2% compared to just 41.1% for black people. The black home ownership rate is actually lower than it was in 1970 when it was at 42%!

line chart or racial disparities in black home ownership

The Importance of Home Ownership

We’ve already written about how home ownership, is the key to building household and generational wealth.

As Ron Cooper, of the National Association of Real Estate Brokers stated, “home ownership is the number one way for African Americans to build household wealth, which increases financial security, builds intergenerational economic mobility, hedges against inflation, and increases civic engagement.” This all contributes to the racial gap.

If you own your home, your equity increases monthly with every mortgage payment. You’re building your own wealth – not someone else’s, such as is the case when you’re renting.

When you build equity into your home, you can borrow against said equity to finance the purchase of another home, invest in stocks and bonds, or even finance your own entrepreneurial venture.

Part of the issue is that many of us understand this and we bought homes under predatory loan terms, aka subprime mortgages, even though many of us could have qualified for prime loans. The 2008 Housing Recession therefore hit us especially hard.

Let’s take a look at  a few sobering statistics that demonstrate some of the issues that continue to contribute to the economic disparity between whites and many communities of color.

Fact #1

The gap in home ownership rates between black and white people, 30% (~42 vs 72%) is larger today than it was in 1968 – 30%.

Again, the 1968 Fair Housing Act may have legally prohibited housing discrimination, but many forms of housing discrimination still occur today.

A study by Project Newsday recently made headlines as it uncovered a systemic practice of real estate agents consistently steering black people toward certain neighborhoods throughout Long Island.

Part of the issue is macroeconomic as the racial wealth gap, is increasingly growing, not just between black and white people, but across all races. The top 1% control 40% of the nations’ wealth.

Given that home ownership is one of the main components for building wealth, it is no wonder the racial gap persists even today.

stats on black home ownership gaps
Credit American Community Survey

Fact # 2

Black people with college degrees have lower home ownership rates than white American high school dropouts according to 2017 data from the American Community Survey – 56.4% for black college grads vs 60.5% for white high dropouts. This statistic blew my mind.

One of the reasons is the disparity in student loan debt between black people and white people. The fact that we are 5X more likely to default on our student loan debt compounds the issue.

Access to credit is even harder once you’ve defaulted on your loans, widening the home ownership gap even further.

Fact #3

Speaking of credit, the vast majority of people will need to secure a loan to purchase a home. Securing a loan means you need access to credit.

According to research conducted by Jaya Dey, a senior economist at Freddie Mac, black Americans typically have lower FICO scores and a higher percentage of missing FICO scores. Being that income and credit are two important factors that lenders use for assessing a potential borrowers risk, the fact that our credit profiles may not be similarly calculated is troubling to say the least.

Black Home ownership rates across the country

The decrease in black home ownership varies across regions in the country. The below map shows cities with the smallest and widest gaps in home ownership rates.

map of black home ownership rates

Be sure to check out the fully interactive map on Urban.org

The home ownership gap depends on several factors depending on the economic wealth of black people in that city as well as our makeup of the local population.

There are several metropolitan areas that are encouraging due to the rate of black home ownership such as PG County, MD, Atlanta, Fayetteville, NC and Charleston, SC.

Olympia Fields – The New Normal

I came across this encouraging story of a neighborhood in suburban Chicago where black home ownership is the norm.

This is a diverse neighborhood with good schools, gated mansions, golf course, and all the amenities one could ask for. The black home ownership rate is 98%! Let that sink in.

Olympia Fields is one of the few majority black communities full of middle and upper middle class black professionals with a home ownership rate exceeding 80%. There are similar communities throughout suburban Chicago such as Lynwood Matteson and South Holland.

Whether you live in a majority black neighborhood, a majority white neighborhood, or one that is diverse with representation across the spectrum of ethnicities, the key is to own your home.

Solutions – Where do We Go From Here?

Everyone, regardless of race, should be evaluated for a potential loan by a lender similarly if they have similar credit profiles. There should be fair and non discriminatory outcomes for black borrowers. Period.

Let’s start with credit as it plays an important role in the widening racial homeownership gaps.

Another solution is to improve the way credit scores are calculated. Other factors should be taken into consideration. Rent payments, for example, are the strongest indicators of whether someone will pay back a loan so they should be taken into consideration – for everyone. Services such as RentTrack and Experian are already making headway in this area.

Next, as stated by NAREB in their 2018 State of Housing in Black America (SHIBA) , excessive loan fees charged by housing lending companies such as Fannie Mae and Freddie Mac need to be eliminated.

Third, as proven in a study by Zillow, neighborhood segregation is having a negative effect on the property value of majority black neighborhoods.   In short, home prices our not appreciating in black neighborhoods at the same rate as non majority-black neighborhoods with similar characteristics.

Finally, be sure to consult with one of our experienced partner agents. Buying or selling a home can seem overwhelming at first so it’s important to have an experienced realtor on your side who can educate and prepare you to help you secure the home of your dreams.