7 steps to close the Black-White homeownership gap

The gap between Black and White homeowners is larger now than it was 60 years ago, before the 1968 Fair Housing Act prohibited discrimination against homeowners based on their race.

In the U.S., the gap between Black and White homeowners is 31%. Here in California, the gap is slightly smaller, at 27%, but still significant. When comparing national figures today and as far back as 1960, the gap between Black and White homeowners is 4% higher today than it was 60 years ago, according to the Urban Institute.

In response to this stark contrast between Black and White homeownership rates, the Mortgage Bankers Association (MBA) has endorsed a detailed 7-point plan proposed by the Black Homeownership Collaborative which seeks to increase Black homeownership by three million new homeowners by 2030.

Three million additional homeowners will increase the Black homeownership rate by 10%. As of the first quarter (Q1) of 2021, the Black homeownership rate is 45%. This 10% boost will bring the rate of Black homeownership to levels it has never previously seen – about 55%. For reference, this is still below the national average homeownership rate, which is 65.6% as of Q1 2021, according to the U.S. Census Bureau.

The 7-point plan to boost Black homeownership includes the following steps:

homeownership counseling, which will educate first-time and especially first-generation homebuyers, as well as those re-entering the homebuyer market on navigating the homebuying process;
down payment assistance through a targeted and sustainable down payment assistance program;
housing production, especially greater construction of those entry-level, lower-priced homes first-time homebuyers gravitate towards;
credit and lending opportunities such as increasing innovation in mortgage credit scoring and mortgage products;
civil and consumer rights, including how the federal government enforces the nation’s fair housing and consumer protection laws;
homeownership sustainability so that those with homes do not lose their homes; and
marketing and outreach to successfully reach mortgage-ready Black homebuyers.

These steps are complementary and intended to be worked on simultaneously. After successful implementation of this plan, new strategies will be created to close the racial homeownership gap completely.

Financial literacy, down payment assistance and more construction

Here in California, real estate professionals are also pressed to consider the divide between White and Latinx homeowners since California is home to the largest Latinx population in the U.S.

Nationally, a 26% gap exists between White and Latinx homeowners as of 2019, according to the U.S. Census Bureau.

Homeownership rates for all demographics are hovering around 55% in California as of 2019, about ten percentage points below the national average.

Two strategies to improve California’s low homeownership rate promoted by firsttuesday are to increase the state’s:

financial literacy requirements in school; and
construction of low- and mid-tier homes.

Financial literacy enables adults to participate in society in a financially responsible way. In terms of homeownership, financial literacy allows buyers to know how to save up for a down payment and which mortgage options are available to them.

Financial literacy is partly what contributes to gaps found between Black, Latinx and White homeowners. For instance, White homeowners are much more likely to take advantage of falling interest rates by refinancing. Thus, between 2005 and 2020, Black homeowners paid 50 basis points higher on interest rates than White homeowners, according to a recent report from the Federal Reserve Bank of Atlanta.

Observable differences such as credit scores and loan-to-value (LTV) ratios account for 80% of the difference between Black and White homeowners. However, different levels of financial literacy contribute to the remaining ambiguous gap between interest rate amounts paid. Financial literacy also partially contributes to that 80% gap. It teaches homebuyers how to raise their credit score and maintain a high score, while also helping buyers keep a low LTV ratio by teaching them how to pay off debts and save.

In addition to financial literacy, the 7-point plan also proposes down payment assistance.

Down payment gifts are an already well-established form of assistance for homebuyers with wealthy relatives, but Black young adults are less likely to receive down payment gifts. In fact, down payment gifts account for 30% of the Black-White homeownership gap, as found in a recent study from the Consumer Finance Protection Bureau (CFPB). Thus, increasing access to down payment assistance for those demographics least likely to receive it will be a boost for homeownership.

Increasing construction of low-tier homes – the third step on the list – will make one of the biggest impacts in increasing the homeownership rate for Black and Latinx households. But here in California, that construction hurdle is a difficult one to cross. Strict zoning laws have made it increasingly difficult to build new single-family residential (SFR) and multi-family housing.

SFR starts were 26% below a year earlier in the six-month phase ending in March 2021. Multi-family starts were down 25% during that same six month period, accelerating a downward trend that began in 2019 and persists today.

Without access to a healthy supply of housing – especially low-tier housing – homeownership remains out of reach for an increasing number of people. For agents, this is a critical concern. When homeownership rates are higher, agents have access to a larger client base, and thus, receive a more stable supply of fees. Closing racial gaps and boosting homeownership is beneficial to all groups – especially agents.

Related article: