Last year the national homeownership rate increased in three consecutive quarters for the first time since 2009. Many observers hailed it as a sign that the homeownership rate, which measures the percentage of homes that are occupied by the owner, has reversed course and now will continue to increase.
Less noticed, though, were signs of improvement in minority homeownership rates. Hispanic homeownership rose to its highest level since the third quarter of 2012. African-American homeownership rose and fell during the year and white-only homeownership—though still 20 to 30 points higher than minorities—ended 2015 lower than it has been in many years.
A Growing Minority Population
Some forecasters see the tide of minority homeownership changing for the first time since 2007. The coming decades will see rapid growth in minority households, particularly Hispanic households. Over three-quarters of household growth from 2010 to 2020 and 88 percent of the growth from 2020 to 2030 will be among minorities.
In both decades, the largest segment of that growth is predicted to be Hispanic households. From 2010 to 2020, whites are the second largest group at 23 percent. But in the following decade, whites are expected drop to 12 percent and the broad “other” category (Asians, American Indians, and people of other or more than one race) takes their place at 24 percent, followed by African Americans at 20 percent.
Out of the 22 million new households from 2010 to 2030, 9 million will be homeowners. More than half of the new homeowners are likely to be Hispanic, 11 percent black, and 29 percent people of other races. A 2014 study by the Urban Institute projects that Hispanics will account for 55.5% of new homeowners from 2010 to 2020.
How Higher Prices Help Minorities Qualify
Though conventional wisdom maintains rising prices make it harder for some minorities to buy homes, a new study by two economists at the Federal Trade Commission suggests that higher prices mean better times for minorities.
This is, the economists argue, because they are accompanied by a loosening of lending standards. Rising values alter lenders’ judgments about acceptable levels of risk and rates of return. “This variation may then translate into changes in the outcomes experienced by minority borrowers relative to non-minorities,” the study said.
The study found that as the rate of home price inflation within a metropolitan area increases, the gap between African Americans and whites shrinks, suggesting that, in times (or places) in which real estate is booming, mortgage lending appears to be more equal than in times (or places) in which real estate is declining. A 10 percentage point increase in the rate of house price inflation, for example, tends to be accompanied by a 0.5 to 1 percentage point decrease in the gap between the African American denial rate and the white denial rate, on average. These magnitudes amount to approximately 5–10% of the overall mean black–white denial difference.
Could the levelling of the African American homeownership rates last year reflect changing lending standards? Lending standards, especially for the FHA loans widely used by minority buyers, have loosened significantly since November 2012, before the recovery began and October 2015. Median FICO scores are down from 704 to 654, loan-to-value rations are down from 95 percent to 81 percent, and debt-to-income ratios are up from 28/41 to 29/46.
Outlook: African Americans Face Barriers
While the number of African American homeowners will rise—their 11 percent share of new homeowners actually will exceed whites’ share by 2020—the black homeownership rate will decline fairly dramatically and the gap between the black and Hispanic population will widen. This trend has percent, versus 47 percent for Hispanic households. By 2030, only 40 percent of African American households will own their homes.
The declining African American homeownership rate does not just reflect differences in age—it reflects a failure of policy and market trends to address the African American homeownership gap, according to the Urban Institute.
In every age group, current trends and policies are widening the ownership gap between African Americans and other groups. This gap reflects two fundamental factors:
First, African American homeownership was particularly battered in the housing crisis, sharply reducing household wealth among African American families and dramatically lowering the long-term prospects for recovery for black homeownership at all ages.
Second, African Americans continue to lag other races and ethnicities in employment, wages and income.
These factors together contribute to a bleak homeownership forecast for African American families without dramatic changes in policy.