Over 39% of California’s population is Latino/Latina (Latinx). California housing professionals interested in future housing market trends need to take a close look at homeownership and housing trends in this growing demographic.
Latinx households earn on average 76% of that earned by White households — problematic for such a large group. Worse, the average Latinx households’ wealth/assets only equals 12% of the average White household’s assets and wealth, according to Zillow.
The disparity largely comes down to the Latinx homeownership gap.
Nationwide, the average homeownership rate from 2013-2017 was:
- 72.1% for White households; and
- 47.4% for Latinx households.
Here in California, Latinx households are earning significantly less than White households. This makes breaking into homeownership difficult and often impossible.
Latinx renters also find it hard to save when a consistently large share of their income is spent on rent. For example, consider an average-earning household seeking to spend no more than 30% of their income on an average local rental. In California’s major metros, the share of households able to accomplish this is:
- in Los Angeles, 5% of Latinx households, compared to 32% of White households;
- in Bakersfield, 46% of Latinx households, compared to 77% of White households;
- in Riverside, 22% of Latinx households, compared to 40% of White households;
- in Sacramento, 24% of Latinx households, compared to 66% of White households;
- in San Diego, 8% of Latinx households, compared to 43% of White households;
- in San Francisco, 7% of Latinx households, compared to 50% of White households; and
- in San Jose, 6% of Latinx households, compared to 51% of White households.
These statistics suggest that, on average, Latinx households are living in less expensive rentals than Whites. However, the average rent increase for Latinx households is $200 a month, compared to $150 a month for White households, according to Zillow. This means Latinx renters — who are already spending a disproportionate amount of their income on housing — are seeing their costs increase more quickly than White households.
Economics plus discrimination
On top of the economic reasons mentioned above, Latinx households face discrimination in the form of:
- intentional mortgage discrimination;
- implicit (and sometimes explicit) discrimination from real estate professionals; and
- a higher likelihood of default and foreclosure.
According to the Department of Housing and Urban Development (HUD), implicit discrimination ensures minority homebuyers (and renters) are:
- shown fewer properties; and
- given less information by real estate agents.
Explicit discrimination still exists in the real estate profession, though less so today. In these rarer cases, real estate agents refuse outright to show properties or take applications from racial minority groups.
California’s homeownership rate is low for all ethnicities, typically averaging roughly ten percentage points below the U.S. homeownership rate. In the third quarter (Q3) of 2019, the California homeownership rate was 56.3%, compared to the average U.S. rate of 64.8%, according to the U.S. Census.
The number one enemy for real estate professionals is a low homeownership rate. With fewer homebuyers and sellers, real estate agents, brokers and mortgage loan originators (MLOs) — along with all the other professionals involved, like appraisers, escrow agents and title insurance officers — have fewer closings, fewer fees and lower incomes.
How can you get involved and help more Latinx households achieve homeownership?
Real estate agents need to be vigilant for signs of predatory lending. Agents can make sure all clients are fully aware of the details of the mortgage they are agreeing to pay back. The Consumer Financial Protection Bureau’s (CFPB’s) mortgage shopping tools are a good place to direct homebuyers for homebuying and mortgage guidance.
Real estate professionals also need to maintain high anti-discrimination standards by following the laws set out in California’s Unruh Civil Rights Act. To ensure brokers, agents, MLOs and landlords don’t violate non-discrimination laws — even unintentionally — professionals need to:
- ask the same questionsof all applicants;
- keep recordsof client interactions; and
- when in doubt, contact a local fair housing expertfor advice — find a list of experts at HUD’s website.
Finally, you can get involved in making sure your local housing inventory continues to match homebuyer and renter demand. This will keep costs in check for all demographics and improve access to homeownership for everyone. Do this by attending local city council meetings and advocating for more housing, builder incentives and common-sense zoning.