This article details the hurdles minority households face in becoming homeowners, and offers actions California real estate agents may take to mitigate these obstacles to homeownership.
Wealth and access to homeownership
Homeownership is the main source of wealth for American families. To increase household wealth, the U.S. government has subsidized and encouraged homeownership through various tax incentives and mortgage programs, like:
- the mortgage interest deduction (MID);
- Federal Housing Administration (FHA)-insured, low down payment mortgages;
- low ceilings on capital gains tax; and
- in California, Proposition 13.
Despite these incentives, some groups have greater difficulty becoming homeowners than others, which leads to an enormous wealth disparity between groups — racial and ethnic groups, that is.
The average household wealth of White households is $114,785 as of 2011, according to an analysis of wealth, homeownership and race by Zillow. This is more than four times greater than the average Black household’s wealth of just $24,792.
Much of this wealth gap can be explained by lower homeownership rates among Black and other minority households.
Why minority households steer clear of homeownership
If homeownership is the key to wealth, why don’t more minority households buy homes?
If past experience has taught minority communities anything, it’s that for minorities, homeownership is not the “safe investment” many claim it to be.
The National Bureau of Economic Research recently published a study on the impact of the 2008 Great Recession on the homeownership rates of Black and Hispanic households compared to White households (Asian-American households were excluded from the study). It found the 2009 foreclosure crisis had a greater effect on minority homebuyer communities compared to White communities. For instance:
- in 2004, when Black homeownership was at its highest, 49.7% of Black households were homeowners — in 2010, this percentage had shrunk to 45.6%; and
- in 2007, when Hispanic homeownership was at its highest, 50.1% of Hispanic households were homeowners — in 2010, this percentage had fallen to 47.5%.
Put another way, over 1-in-10 Black and Hispanic homeowner households lost their homes to foreclosure during this time. In contrast, just 1-in-25 White homeowner households were foreclosed upon.
Why were Black and Hispanic homeowners more than twice as likely than White homeowners to lose their homes? Three factors converged to increase the likelihood of foreclosure:
- subprime or predatory lending;
- high debt-to-income ratios (DTIs) allowed by lenders; and
- high cases of employment instability.
Millennium Boom, the perfect storm for minority homebuyers
The most dangerous factor that increases the likelihood of foreclosure for Black and Hispanic homebuyers is predatory lending.
The largest recognized case of predatory lending was settled by Bank of America (BofA) in 2012 for their subsidiary company, Countrywide’s, discriminatory lending practices. BofA paid $335 million to the victims of Countrywide’s actions.
Countrywide discriminated against minority homebuyers in two ways, by:
- charging higher fees to minorities than White homebuyers with equivalent qualifications; and
- steering minority homebuyers into subprime mortgage products, even though many minority homebuyers had equal or better credit histories than other White homebuyers who were not shown bad mortgages.
Higher upfront fees and subprime mortgages led to the minorities targeted by Countrywide paying much more for mortgages than similarly qualified White homebuyers. Therefore, when the housing market and the economy went bust following the Millennium Boom, it was more difficult for minority homebuyers to make mortgage payments than the White homeowners who worked with Countrywide.
Part of this steering included lenders who encouraged minority homebuyers to take on more debt than they would be able to carry. It’s common knowledge that the higher a homebuyer’s DTI, the less likely they are going to be able to make future mortgage payments. Lenders of the Millennium Boom era did not seem to care about this axiom, and knowingly pushed minority homebuyers into mortgages they were unable to pay. This resulted in higher immediate fees for lenders, who jettisoned the risk to other investors by selling the bad mortgages on the secondary mortgage market — out of sight, out of mind.
The third reason minority homeowners were more likely to lose their home following the Great Recession is due to the statistical fact that the heads of Black and Hispanic households are more likely to be employed in professions more adversely affected by economic downturns, like manufacturing and other hourly jobs. In other words, they are more likely to lose their jobs than White heads of households.
Job loss and the inability to pay are the biggest reasons homeowners default on their mortgages, according to the Federal Reserve Bank of Boston. Other financial shocks also contribute to the decision to default, which is typically a struggling household’s last resort.
The problem for California real estate
California is a large, diverse state. Nearly 40% of the population identifies as Hispanic or Latino, according to the U.S. Census. Over 14% identify as Asian and nearly 7% identify as Black or African American. Therefore, discrimination in the mortgage and housing markets has a far-reaching influence on our state.
Another issue for minority homebuyers, not mentioned in the National Bureau of Economic Research report, is the discriminatory behavior of some real estate agents.
Compared to similarly qualified White clients, the U.S. Department of Housing and Urban Development (HUD) finds real estate agents nationwide show:
- 18% fewer for-sale listings and 4% fewer rental listings to Black households;
- 19% fewer for-sale listings and 7% fewer rental listings to Asian households; and
- roughly the same amount of for-sale listings and 7% fewer rental listings to Hispanic households.
Why do real estate agents tend to show minority homebuyers fewer listings than their White counterparts? It’s usually implicit bias on behalf of the real estate agent. For instance, some real estate agents may think they’re doing their Black clients a favor by only showing them homes in “Black neighborhoods” (an unlawful practice). Or agents may not realize they’re slower to respond to requests by minority homebuyers.
This perpetuates neighborhood segregation, which limits minority household access to higher quality jobs, better schools and other resources that disproportionately benefit White households.
The only way to stop a California real estate agent discriminating against minorities? The California Bureau of Real Estate (CalBRE) may enforce anti-discrimination laws. However, CalBRE will only pursue an agent for ethics violations after first receiving a formal complaint.
In cases of discrimination, most homebuyers, sellers and renters do not know how to take appropriate action by contacting CalBRE. Therefore, it is up to fellow agents and brokers to report discriminatory practices at CalBRE’s website. [See the “Fair Housing” section in Agency, Fair Housing, Trust Funds, Ethics and Risk Management, available through the first tuesday Realtipedia]
This article is surprisingly naive and boiler plate, I’m sorry to say — especially coming from First Tuesday. You’d think they would be both bolder and more enlightened to make a statement. A huge thumbs up to both Sergey and Tina. I completely concur with what you’re saying, glad I’m not alone. I am from a cuban immigrant background so I identify with what Sergey said about communism as well. If you (naively) accept the reasons provided for the WHY behind buyers’ default, then you’re not thinking beyond what the article itself told you. The idea that someone is challenging it means that you’re not going to accept what it is stating as fact. Duh. The other part about statistics is that besides being skewed and biased as to what questions are asked, how/when/where/to whom they are asked, and all of the other sways involved in the collection of the data, then there is the interpretation of those statistics. Statistics are not fact. They are one person’s or group’s way to make their personal opinions be backed up by numbers that defend their position b/c they APPEAR to be fact. In fact, they are not. (See what I did there?) In the midst of blaming Wall Street and blaming Big Bad Government, we fail to acknowledge the last checkpoint here that would have made any of these loans or the ensuing economic catastrophe avoidable in the first place: The Buyer. Last time I checked we are NOT in a communist country, nor one run by martial law or any other form of societal controls that FORCE anyone to buy something they don’t want to buy. We live in a capitalist democracy where you are just as free to be dumb and broke as you are to be smart and rich. That is the cold, cruel reality of this type of economy-government structure and people often forget it. Regardless of any sleazy salesperson’s spin on how great a product is (the lender/realtor in this case for the sake of argument), or the pressure they will place on a buyer to make the purchase…it is ultimately the buyer who decides to reach for their wallet and say, “I’ll take it!” Even if you don’t understand all of the legal mumbo jumbo in the thick stack of escrow documents related to a home sale, you must have either been informed of, or logically ASKED, what your total monthly home payment was going to be and have received it in writing (again, in the loan docs since the get-go, not only at the end when they’re pinning your other hand on the cross). Armed with that very basic and straightforward information, YOU are the best and most interested person to be secure as to your ability to make your home payment and repay your loan. And you would also want a back-up plan–whether that means having savings, or cash advance on a credit card, getting a second job or a third job or whatever. Those are the very important plans and decisions we must all think through with any major purchase, especially those in the hundreds of thousands of dollars, hello! If you know you can’t afford it — don’t buy it. That goes for a house, a car, a pair of shoes, a fancy dinner, a computer or a baseball cap. And in the lesser cases of predatory lending (yes, lesser…the vast majority of “victims” of predatory lenders made themselves victims by not asking any questions, and/or not paying attention to the numbers on the papers in front of them) where there was TRUE legal negligence and outright lying to a client about what their monthly expense would be, you would have the paperwork to clearly show where you told one TOTAL amount, and ended up with another much higher one than you agreed to. This is the basics to buying anything, people. Not rocket science here. I see people ask a ton of questions over minor purchases as to every last dime they’re going to spend. So don’t come telling me that they sat in a chair and signed their life away as they turned their heads in the opposite direction because of how “trusting” they were of the real estate people and the government and the loan officer and all the other wolves. That just doesn’t add up. And if a person was completely that trusting (we’ll call it that) to blindly sign papers for a financial commitment of that high amount and serious nature, then they didn’t deserve to get that loan at all. That is irresponsible. And then there are another gamut of reasons why people walked away from their loans that have more to do with mass social psychology and bandwagoning than anyone’s inability to pay their loan back. Many saw their neighbors doing it, friends and family doing it, co-workers doing it, and they got tired of the high payment to which many new minority homeowners simply were not accustomed to managing. They realized THEY got themSELVES in over their heads, didn’t want to keep making the payment and simply…defaulted. Like everyone else did. The cases where someone was truly and legitimately ripped off and victimized are a great many less than the scenario I just described. People just don’t want to accept it b/c they’d have no one to blame but themselves; no one’s behavior to reproach but their own; no one’s bad judgment and irresponsibility to chastise but their own. And the more people who do the same thing–even when it’s wrong–the more they can convince themselves it’s okay. I don’t have an axe to grind with anyone. I just sat back and observed one unfortunate event unfold after another, and then all of it snowballed into the housing crisis, and here we are. Things just are what they are, and we’d make more progress as a society and as individuals if we just called things by their real name. The truth hurts, I know. Again…Sergey, Tina, my applause.
This topic again? The democrat’s attempts to “solve” this “problem” is what caused the financial crisis in the first place. What you call “predatory lending” in your article should actually be called “mandated lending”. The democrats had an idea that everyone deserves to own a home regardless of your income, credit, etc and came up with legislation that in essence eased up financing rules so much that people who were financially unstable were allowed to purchase homes that they could not afford. This was done via Fannie and Freddie vehicles. This was a government operation. These loans would never have taken place in a true free market but since these loans were guaranteed with tax payer money, it was pretty much government subsidized. Furthermore, lenders who did not make enough of these loans would be penalized, so in essence, if you wanted to stay in business, you had to make sure a certain percentage of your portfolio is made to these “underprivelaged” minorities.
We all know what followed. The only sad part is that instead of acknowledging that they caused the problem, the government played the blame card and blamed the lenders for the problem they forced them to participate in.
Now we are hearing this again? And from First Tuesday? Common, we should have more common sense.
And before you start saying that I am insensitive, blah, blah, blah – I am an immigrant, my family came to the US with a couple suitcases, but we worked hard to get to where we are and I am grateful for having this opportunity to be in this country. What I don’t appreciate is others crying that they are victims and things are unfair, and others trying to “promote” this idea. You should learn to take your own responsibility instead of waiting for others to give you freebies. Building wealth takes time, risk and effort and if someone is not willing to sacrifice that, they should not be complaining.
This article is another sad example of bias and propaganda that have been causing the issues our country has been recently facing.
Sergey,
That is the true events and well said, it is nice to see others with integrity who see right through the deception and are not afraid to speak truth.
Hi Tina,
Yes, and unfortunately, it seems like not many people are speaking up, although I’m very certain that a great majority understands this. It’s just not comfortable to not be politically correct. In essence, there is a sort of bullying going on from the politically correct establishment – if you don’t think the way you are told to think, you are arrogant, insensitive, phobic, etc.
This whole approach and situation is very parallel to what my family had to go through while living under a communist regime. The only difference is that here in the US we are not yet imprisoned for our thoughts (although that is really starting to take place) and we don’t yet need to fear government officials knocking at our door at night and us disappearing from society (I can tell many stories) – but everything is pointing in that direction here in the US.
My fear is that if we as a society don’t understand the dangers of the political correctness strategies of our government and continue to stay silent, a day will come when we will no longer have an opportunity to turn back. That is why we must not stay silent and not allow false ideology to shape our thoughts, nor others. We must speak and express our thoughts freely while we still have the opportunity to do so.
Did you miss the impact of discrimination on Black home ownership? Also in your rather lengthy comment, you lead with some blather about deceptive think tanks. The statistics about the impact of the subprime loan debacle do not lie. Politics at this point has little to do with the facts.
I am not sure what you mean when you say that “Minorities have the same opportunity of homeownership as to (sic) any other race….”. That is a statement with no foundation whatsoever. It’s as if you didn’t read the article. The real issue is wealth-building. Opportunity to buy real estate is one thing but the opportunity to keep it is something else altogether. The article clearly makes the point:
“Why were Black and Hispanic homeowners more than twice as likely than White homeowners to lose their homes? Three factors converged to increase the likelihood of foreclosure:
1. subprime or predatory lending;
2. high debt-to-income ratios (DTIs) allowed by lenders; and
3. high cases of employment instability.”
Chere your vacuous reply shows the indoctrinated view of your ignorance.
“The statistics about the impact of the subprime loan debacle do not lie.” – once again that depends on where you get your information from due to many organizations that have their agenda and National Bureau of Economic Research is one of those organizations that their studies has no merit and is of misleading information, so when a article uses information that is from a source that has a bias agenda, it makes the information and the article hollow.
” It’s as if you didn’t read the article. ” – Chere, your obtuse to my comment, I read the article, that is why I can pick it apart and show were the source of information is misleading, your reaction is clearly one who’s bubble was popped.
“The article clearly makes the point:
“Why were Black and Hispanic homeowners more than twice as likely than White homeowners to lose their homes? Three factors converged to increase the likelihood of foreclosure:
– Once again, this information is from National Bureau of Economic Research a Liberal bias think tank that gets their funding from Liberal organizations, so their agenda is of misleading facts, to deceive the public into thinking a false reality, therefore, this is the politics in question.
“The real issue is wealth-building. Opportunity to buy real estate is one thing but the opportunity to keep it is something else altogether” – That would be up to the individual and whether that individual takes on the responsibility of homeownership, instead of playing the victim card.
Though their immediate influence is mostly concentrated within the beltway, think tanks in the United States impact politics nationwide and even worldwide. Representatives from think tanks often testify in congressional hearings and provide depth to news stories with their expert insights. And though many such organizations maintain nonpartisan identities, the employees naturally have their own political leanings. A U.S. News analysis of data from the Center for Responsive Politics, a nonpartisan organization that tracks money in politics, suggests that employees at all but the most conservative organizations gave far more financial support to Democrats than Republicans over the last four election cycles. Below is the amounts of campaign contributions by employees of some of the top U.S. think tanks, broken down by giving to Republican or conservative candidates and organizations versus those that are Democratic or liberal. Organization: National Bureau of Economic Research Political Orientation: Centrist 2003-2010 Donations: 1,750 GOP %: 0.00% Dem % :100.00%.
We must be vigilant and use common sense, as to the sources of where we obtain information, there are many organizations that like to put a spin on reality. The truth of the matter is that Minorities have the same opportunity of homeownership as to any other race and the Hispanic population, of which is now the majority of race in the state of California. For the Hispanic homeownership rate and the number of owned Hispanic households increased, while overall homeownership rates in the U.S. decreased for the 12th time, according to data from the State of Hispanic Homeownership Report put out by the Hispanic Wealth Project and the National Association of Hispanic Real Estate Professionals.
Minority Home Ownership Rates Are Rising
Daily Real Estate News | Monday, February 29, 2016
Minority home ownership rates are showing signs of improvement for the first time since 2007, and they are likely to see significant growth in the coming decades. Indeed, forecasters predict that more than three-quarters of household growth from 2010 to 2020 will be from minorities.