All active real estate licensees want more homeownership opportunities for qualified homebuyers, especially those who remain renters due purely to social and historical distortions.
But offering these opportunities as a national housing policy when prices are just past an historic peak? Maybe a good idea for homeowners who want to sell homes when sales volume is thin — but not a great idea for households from historically marginalized communities who are encouraged to purchase just in time to lose value on their homes and dive headfirst into negative equity.
In other words, the road to financial hell is often paved with good intentions.
This is the glaring problem of the Downpayment Toward Equity Act of 2023, introduced by U.S. Representative from California, Maxine Waters.
Under the federal bill, financial assistance will be provided to eligible homebuyers for:
- down payments;
- closing costs; and
- and the cost to reduce interest rates amounting to up to $20,000 in savings for first-generation homebuyers and up to $25,000 for socially and economically disadvantaged homebuyers.
Homebuyers eligible for the pending federal grant program will have an income of no more than 120% of the area median income (AMI) or up to 180% of the AMI for high-cost areas. Further, they may not have purchased a home within the past three years and must be a first generation homebuyer. This program will benefit up to five million homebuyers, primarily from Black and Latinx communities who are historically denied the benefits of homeownership, according to the Bill’s analysis.
Here in California, there are already several first-time homebuyer programs already in place and functioning, including:
- the Forgivable Equity Builder Loan Programfrom the California Housing and Finance Agency (CalHFA), which allows first-time homebuyers to borrow a down payment at a 0% interest rate. It also provides forgivable loans to homebuyers for up to 10% of the home’s purchase price; and
- the CalHome Awards Programfrom the Department of Housing and Community Development (HCD), which provides grants to local public agencies and nonprofit corporations for first-time homebuyer down payment assistance, housing rehabilitation assistance, homebuyer counseling and technical assistance to enable low- and very low-income households become or remain homeowners.
While California has more equity-driven homeownership programs than many states, there is still a long way to go before the minority homeownership gap is closed here or elsewhere.
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Minority homebuyers, beware
While it’s important on many levels — economic, social and personal — to level the persistent homeownership — and wealth — disparities that exist in Black and Latinx communities, pushing these measures in 2023 will do more harm than good.
For example, consider the last time homeownership rates among minority households jumped. During the Millennium Boom of the 2000s, minorities were targeted for subprime mortgages on the promise of no down payments and malicious mortgage terms which, when the housing market inevitably went bust, lead to historic levels of foreclosure.
Rather than seeing a long-term increase in homeownership and wealth, the outcome of predatory lending during the Millennium Boom was a step backward for minority communities, deepening mistrust in the financial system. Homeownership in California has yet to recovery from the Great Recession which followed.
Before that, the decades-long discriminatory practice of redlining by government and lenders sequestered minority communities, preventing community investment and any meaningful growth in generational wealth.
Today, legislators are trying to right these wrongs which continue to hold back minority communities, with some success. In fact, from 2019 through 2021, the average annual homeownership rate increased by:
- 0.7 percentage points for white households;
- 0.9 points for Latino households;
- 2.1 points for Black households; and
- 2.3 points for Asian and other households, including Native American and Pacific Islander households, according to the U.S. Census Bureau.
But enticing anyone to buy when the market is tumbling is bad news for the personal finances of any households who bite — especially those who lack access to generational wealth and long-held jobs to fall back on.
Here in California, the average homeowner lost $60,000 in equity year-over-year, as of Q1 2023. Further, a home valued at $1 million when home prices peaked in May 2022 has decreased to roughly $900,000 as of June 2023, according to CoreLogic.
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Pandemic-era buying spree plunges homebuyers from minority groups underwater
Rather than focus on luring vulnerable homebuyers to purchase when home value lacks sure footing, real estate agents need to turn their focus to assisting the myriad of homeowners who have been recently plunged underwater due to declining home prices.
An agent works as a short sale negotiator when authorized by the seller to obtain the mortgage holder’s approval of a discounted payoff on a sale the agent has negotiated.
Learn more about how to become a foreclosure or short sale consultant to continue making a living even as sales remain scarce in 2023 and beyond.
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