Why the homeownership gap between White and Black Americans is larger today than it was over 50 years ago
For more than 30 years, Parker McAllister's parents have held onto the Brooklyn, New York, brownstone they purchased in 1985 for about $91,000.
After raising two kids in the home, McAllister's parents now have three tenants living in their Bedford-Stuyvesant multi-family property so they can keep up with mortgage payments.
To relieve his parents of the work and financial load that comes with maintaining the property, McAllister, 29, hopes to one day take over the home so that his family doesn't have to sell. Right now, he says, he's mentally prepared to take on the responsibility, but not financially, as his parents still owe money on the home.
"I would have to [think] about us refinancing again in order to get a lower rate," he tells CNBC Make It. His parents already refinanced their home once after losing their jobs in 2008 at the height of the Great Recession. Now, with his parents retired, McAllister, who is a musician, says that showing proof of income to refinance would be extremely difficult. Currently, he's relying on unemployment and side-hustle money from producing music to make ends meet since most of his shows have been canceled due to the coronavirus pandemic.
His desire to hold on to his family's home, he says, is linked to homeownership being one of the key ways to building wealth in the U.S. The Federal Reserve reports that the average homeowner in 2016 had a household wealth of $231,400, compared to the average renter having a household wealth of just $5,200.
Since returning home from college in 2012, McAllister says he's seen how homeownership has shifted in his neighborhood with many long-term residents moving out as home prices have increased over the last few years. Right now, homes in Bedford-Stuyvesant are selling for a little over $1 million, according to Zillow. But, with the coronavirus impacting the economy, home prices across the U.S. are expected to fall by 2-3% this year, making it even more important for McAllister to hold on to his family's brownstone.
Similar to McAllister, many other Black families are feeling the stress of today's pandemic compounded with the lingering effects of the 2008 crisis. In May, according to the Urban Institute, Black homeowners were more likely than White homeowners to have missed or deferred their mortgage payment due to the financial impact of the coronavirus, leading many experts to fear a widening gap in homeownership disparities.
Prior to the pandemic, Black homeownership had already hit a record low of 40.6% in the second quarter of 2019. Though that figure increased to 47% for the second quarter of 2020, data from the U.S. Census Bureau shows that Black Americans still have the lowest rate of homeownership compared to other racial groups, with White Americans having a homeownership rate of 76%, Hispanic Americans having a homeownership rate of 51.4% and Asian, Native Hawaiian and Pacific Islanders having a homeownership rate of 61.4%.
When looking at the 100 U.S. cities with the largest population of Black households, the Urban Institute found that not one city has a Black and White homeownership gap that is close to being closed. In Minneapolis, a city that faced widespread civil unrest following the death of George Floyd, there is a homeownership gap of 50% between White and Black residents. Even in cities with larger Black populations and more economic opportunity, like Washington, D.C. and Los Angeles, a large homeownership gap of 20 to 25% still remains.
Alanna McCargo, Urban Institute's vice president for housing finance policy, says that today's lag in Black homeownership is a direct result of years of unfair policies and discrimination. In fact, the nearly 30-percentage-point gap between White and Black homeownership today is actually larger than the 27-percentage-point gap that existed in 1960 when housing discrimination was legal, according to Urban Institute data.
The impact of longstanding discrimination and unjust laws
In 1968, the Fair Housing Act was passed, making it illegal for anyone to be discriminated against when renting or buying a home. Prior to the passing of this civil rights legislation, Black families were locked out of the opportunity to create generational wealth by purchasing a home and passing it down to their kids, McCargo explains, because they were denied mortgage loans and access to certain neighborhoods because of their skin color.
Lisa Rice, president and CEO of the National Fair Housing Alliance, recalls how these discriminatory practices directly affected her family. In 1963, when she was just six months old, she says her parents went to purchase a home in Ohio and were blatantly told they could only buy property in a particular neighborhood.
"My mom wanted to buy a home in a predominantly White suburb called Sylvania, Ohio," Rice says. "The real estate agent explained to my mother that she could not show my mom the home because we were Black. She said that if she were to show [her] that house, not only would she lose her real estate license, but she would lose her job."
The agent took Rice's parents to a neighborhood in Toledo called Parkside Extensions because that was an area where the agent said more Black families were moving. At the time, Rice says her family was the only Black family on the block. But five years later, the neighborhood had transitioned to one that was predominantly Black.
Rice, who now plays a critical role in ensuring equal housing opportunity for everyone, explains that what happened to her family is the result of redlining practices, which is the systemic denial of bank loans and government resources to residents of specific neighborhoods.
"Our neighborhood was designated as a 'changing neighborhood,' meaning the real estate community and the lending community understood that Black people would be moving into this area, and the lenders began redlining the area."
When her dad went to get a loan from the bank, she says he was blatantly told, "Mr. Rice, we're not making loans in that neighborhood." Like most Black families, Rice's father was forced to get a subprime loan to purchase their home, which carried a higher interest rate and a higher risk of default than a traditional loan.
"We've never had a time in American history when mainstream lenders were the primary source of credit for people of color," she says. "It has always been subprime lenders who are the providers of credit."
Fortunately, Rice says, her parents were able to get a fixed mortgage rate and eventually pay off their loan. But not all Black families were as fortunate.
Today, she points out, acts of housing discrimination are still taking place. A 2019 Newsday report showed that Black and Hispanic homebuyers were disproportionately discriminated against by real estate agents in the Long Island, New York area. According to the three-year investigation, it was found that many agents asked for different financial qualifications from White homebuyers than they did from Black homebuyers before sharing a house listing or giving home tours. The report also found evidence that many agents may practice "steering" — the unlawful practice of limiting where you show a person a home based on race — by directing White homebuyers and minority homebuyers to different communities.
According to 2020 data from the Home Mortgage Disclosure Act, lenders deny mortgages for Black applicants at a rate 80% higher than that of White applicants, CNBC reports.
The impact of the subprime housing crisis
In the 1990s, Rice explains, subprime lenders started to push for adjustable rate mortgages (ARM), which are loans that typically start off with low interest rates and then increase after just a few years. "So instead of your payment being fixed over a long period of time, what happened is that after two to three years, your payment would increase dramatically," she says. "And, I'm not talking about increasing by 15 or 20%. We saw payments increasing by 50%."
This shift in subprime lending led more borrowers to refinance their home every two to three years, Rice says, stripping them of their equity in the end.
Between 2004 and 2007, Hispanic Americans and Black Americans were 78% and 105% more likely than White Americans to have a high-cost mortgage, respectively, according to data from the National Bureau of Economic Research. This led to a disproportionate number of Black and Brown families being negatively impacted by the 2007-2010 housing crisis. During this time, nearly 8% of Black American and Latino families lost their homes due to foreclosure, compared to 4.5% of White families.
In 2005, before the housing crisis, the median net worth of Black households was $12,124, compared to White households who have a median net worth of $134,992, according to the Pew Research Center. By 2009, the net worth of Black households had fallen to $5,677, and the median net worth of White families had dropped to $113,149.
Now, roughly 10 years after the housing crisis has ended, many Black families have still not recovered.
The impact of gentrification
In major metropolitan areas where Black residents were once dominant, research shows that homeownership levels have drastically shifted as a result of gentrification and increased housing costs. Between 2000 and 2013, more than 135,000 residents were displaced from their homes in 230 neighborhoods across the country, according to the National Community Reinvestment Coalition. The majority of these residents, NCRC says, were Black and Hispanic.
"Gentrification can be positive, but there can also be some negatives associated with it," says Rice. As full-service grocery stores move into a community and local governments invest in cleaning up toxic and hazardous sites, the value of a neighborhood goes up, she says. This in turn leads to an increase in property taxes, which often forces some long-time residents, who have long been without access to health food stores and have been subject to pollution, to be priced out of their neighborhoods.
In Detroit, for example, a third of the city's properties have foreclosed since 2008 as a result of rising costs and tax inflation due to gentrification. Recently, an investigation by The Detroit News found that homeowners in the city had collectively been overtaxed by at least $600 million following the Great Recession, meaning that a majority of residents faced an unfair surcharge in taxes on their property. As a result of this tax foreclosure crisis, Michigan's Black homeownership rate dropped from over 50% in 2000, to 40% in 2016.
According to data from the Urban Institute, housing costs, combined with increased health-care expenses, can easily lead to financial insecurity for older Americans who are retired. The increase in neighborhood taxes and home prices due to gentrification often has a disproportionate impact on senior residents of color, McCargo explains, who are then forced to sell their homes to cover other expenses.
Fixing the problem
In order to close the racial gap in homeownership, both Rice and McCargo agree that real changes need to be made at the policy level. To avoid an increase of residents being pushed out of their homes due to gentrification and rising taxes, Rice says more states need to adopt homestead programs in which tax relief benefits are given to eligible homeowners who are struggling to pay their bills.
"Increased taxes are a primary challenge that people grapple with as communities are gentrifying," she says. "But the other challenge that people face is rising rent." As neighborhoods are gentrifying, she explains, rent is also being increased because homeowners who serve as landlords have to raise monthly payments to cover rising taxes and expenses, leading to many long-time renters also being pushed out of their communities.
To ensure that discrimination doesn't happen during the home buying or renting process, Rice says more states need to implement their own fair housing rules and regulations since the federal government is looking to roll back fair housing laws at the national level. In a July 29 tweet, President Trump announced that "people living their suburban lifestyle dream" will no longer be "bothered or financially hurt by having low-income housing built in [their] neighborhood" because he was rescinding the Obama administration's Affirmatively Furthering Fair Housing rule that required the federal government to actively address housing discrimination.
In addition to states doing their part to implement their own policies, McCargo and Rice also encourage interested homebuyers to do their research on the many different grants, resources and first-time homebuyer programs available so that they can have access to owning a home.
"Homeownership is so critically important," says Rice. "[It is] the number-one way for families and individuals to build wealth in the United States...and I don't see anything on the horizon changing that paradigm so we have to make sure that communities of color have access to [these] opportunities."
Video by: Alysha Webb
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