Homeownership enables families to build wealth, helps stabilize communities, and has been linked to access to educational, employment opportunities, increased safety as well as physical and mental health. The market for single-family homes and their financing are key components of a strong economy; the housing market also provides employment for thousands of professionals as well as earnings for industry practitioners and returns for investors. Despite the emphasis on this aspect of the ‘American Dream’ in popular culture and among scholars and policymakers, Black and other minority families have faced a number of barriers to homeownership, most of which can be traced to cumulative disadvantage and structural inequalities. In the years since the 2008 crisis, homeownership opportunities for Black Americans had begun to take a promising turn. However, in early 2020, the onset of the COVID-19 pandemic very quickly began to threaten the lives, health, and economic viability of Black households across the U.S. This report presents the current state of homeownership for Black households in the U.S., market opportunities for Black homebuyers, key demographic and economic characteristics that differentiate Black homeowners, a profile of Black mortgage loan applicants and borrowers based on mortgage underwriting criteria, and recommendations for impactful public policy interventions.
I. State of Homeownership in Black America
Disparities in homeownership and access to credit contribute to cumulative wealth inequality. Black homeownership was 47 percent in 2020 and has yet to reach pre-2008 crisis levels.
According to the U.S. Census Bureau, in 2019 the homeownership rate was 42.1 percent for Black, 47.5 percent for Latinx, and 73.4 percent for White households. Census estimates for the second quarter of 2020 report that the Black homeownership rate of 47.0 percent, and 76.0 percent for non-Hispanic White households.
The Black-white homeownership gap in 2020 was 26 percentage points, only slightly lower than the 26.8 percentage point gap in 1960, before the passage of the 1968 Fair Housing Act.
Blacks are under-represented among owner households. The proportion of new Black homebuyers is less than half of the proportion of Black households in the U.S. (13 percent).
Homeownership rates are especially low for younger Black households. the Black-White homeownership gap is high across all age groups. The smallest gap is among those who are over age 65, which suggests that Blacks become homeowners later in life. Still, the homeownership rate is 62.4 percent for Blacks over age 65, relative to 81.4 percent for Whites in this age group. Homeownership rates for Black householders under age 35 are lower than rates for other groups.
Blacks have a higher share of owner households headed by females than any other category of owner households. However, the gender gap in homeownership is negligible compared to other racial and ethnic groups.
Black homeowners are less likely to have a college degree.
The homeownership rate for Blacks who graduated from college is only 3.2 percentage points higher than that of White high school dropouts.
For Black college students, 86.4 percent have some form of student loan debt. Twenty-nine percent of 2015–16 bachelor’s degree recipients graduated without debt, but only 14 percent of African American graduates were able to avoid student loans. Thirty-three percent of African American bachelor’s degree recipients owe $40,000 or more in debt, compared with 18 percent of White graduates and 13 percent of Hispanic graduates.
Income & Wealth
Racial gaps in income and wealth are considered primary drivers of the homeownership gap. The cumulative effects of these stark disparities manifest themselves in access to mortgage credit and homeownership opportunities. In 2018, the median income for Black households was 40 percent lower than the median for White households, and White households had a median net worth that was 10 times higher than the median net worth for Black households. The Federal Reserve reports that approximately 20 percent of Black households have zero or negative net worth, compared to 9 percent of White households .
Geographic Location & House Prices
Where do Black homeowners live? The Black population in the U.S. is concentrated in major cities. Sixty-two percent of the Black population are concentrated in 20 MSAs. Homeownership rates range from 31.9 percent in Los Angeles to 49.8 percent in Richmond, VA. It is also worth noting that in 2019, 25.6 percent of the Black population resided in areas where the median house price is above that for the U.S.-- $253,000
Many of these metropolitan areas are highly segregated by race. In many cases, e.g. New York, Chicago, Detroit, St. Louis, Cleveland, greater homeownership gaps are accompanied by higher levels of segregation. Both median and mean house values of Black owners are lower than other racial/ethnic groups. Due to lower incomes and wealth levels and other credit constraints, Black homebuyers have less capacity to qualify for larger mortgage loans or more expensive homes.
There is considerable evidence from prior research that home values in predominantly Black neighborhoods tend to be lower than values in similarly situated neighborhoods with lower minority concentrations. The average home value was $ 350,194 for White new homebuyers and $255,878 for Black new homebuyers. Average home values for Black owners were 45 % lower than White owned homes in 2018. Since the 2008 crisis, Black homeowners in all income categories are more likely to face negative house price appreciation.
Some of the most affordable MSAs include Baltimore, Detroit, St. Louis, Memphis, and Cleveland, yet these MSAs have Black homeownership rates that are at or below average. The Black-White homeownership gap is also relatively high in these MSAs.
In 2019, approximately 472,000 home purchase mortgages were obtained by Black homebuyers, over $113 billion in home purchases. These figures represent a potential $6.8 billion in real estate commissions, and significant opportunities for real estate professionals who serve these communities. Loan applications from and originations to Black homebuyers nearly doubled between 2018 and 2019; in addition, there were nearly twice the number of loan applications and originations for Black borrowers in the South as there were in the West, Northeast and Midwest regions combined.
Although Millennials have lower homeownership rates than previous cohorts, and are delaying homebuying by 7 years or more, 89 percent of Millennials report intentions to become homeowners eventually. The highest concentrations of this demographic group reside in the Atlanta, DC, Dallas and Miami metropolitan areas.
Approximately 17 percent of Black households nationwide had incomes over $110,000. These households tend to be concentrated in a relatively small number of metropolitan areas, e.g., the Washington, DC, and Atlanta areas.
According to Freddie Mac, as of 2019, there were approximately 2.9 million Black ‘mortgage-ready’ households in the U.S. These include potential homebuyers who are under 45 years of age, living in a geographically affordable area where there is adequate supply of housing and who have the income and credit history to qualify.
II. State of the Mortgage Market for Black Borrowers
In this section, we highlight key characteristics of the mortgage market for Black borrowers. Ten lenders were responsible for originating 24 percent of mortgage loans made to Black borrowers in 2019. The average Black homebuyer is between ages 35 and 44 and has a FICO score of 626. In addition, the average Black homebuyer obtains an FHA mortgage for $209,000, has a DTI ratio of 40 percent, a downpayment of 2.5 percent and an income of $112,000. In the conventional market, Black homebuyers borrow an average of $236,000, put 5 percent down, have a DTI of 39 percent, and have an average income of $209,000.
In 2018, 53 percent of Black mortgage borrowers obtained Federal Housing Administration (FHA) or Veterans Administration (VA) loans, compared to 23 percent of White borrowers. At the same time, 73.6 percent of White homebuyers obtained conventional loans, while 45 percent of Black homebuyers took out conventional mortgages
Mortgage Loan Denials
Black applicants are more than twice as likely to have their applications rejected, and this has been the case consistently over time. Regardless of race or ethnicity, DTI and credit history are the most common reasons cited for loan rejection, although the proportions of rejections due to DTI and credit history are significantly higher for Black applicants. In addition, Black applicants were less likely than White applicants to be rejected due to issues with the collateral or incomplete applications.
According to an analysis of 2018 HMDA data, Black borrowers pay significantly higher rates for FHA, and slightly higher rates for conventional mortgage loans. Disparities by borrower race matter more than those based on ethnicity alone. For example, in the case of FHA, Black non-Hispanic borrowers paid an average of 5.52 percent while Black Latinx borrowers were charged an average of 4.87 percent. White Latinx borrowers paid an average of 4.91 for an FHA loan, compared to 4.83 for White non-Latinx borrowers. For conventional loans, Black Non-Latinx borrowers and White Latinx borrowers also paid higher rates than White non-Latinx Borrowers.
For Black borrowers, the average single-family home purchase loan amount for Black and Black Hispanic borrowers in 2018 was $206,000 for FHA, and $214,000 and $208,000, respectively for conventional originations. White FHA homebuyers borrowed on average $190,000 in FHA loans, and $270,000 in conventional loans.
In 2018, Black, Hispanic/Latinx FHA borrowers had an average annual income of $149,000 and Black non-Hispanic FHA borrowers had an annual income of $103,000. White non-Hispanic FHA borrowers had an average income of $140,000, while White Hispanic FHA borrowers’ incomes were $167,000. Black conventional borrowers earn on average $65,000 a year more than Black borrowers in the FHA market. Black homebuyers and owners have lower incomes than their White counterparts.
Down Payments and LTV Ratios
Black homebuyers have higher LTVs on average, consistent with a higher proportion of FHA lending. The median downpayment amount for Black homebuyers is 3.5 percent-- which reflects the fact that approximately 53 percent of mortgages made to Black borrowers are FHA- or VA-insured. In contrast, the median downpayment amount for White homebuyers in 2018 was 10 %. Loans to Black borrowers are significantly more likely to have LTVs > 90%.
Black borrowers are more likely to have missing FICO scores and credit history challenges due to cumulative economic disadvantage over time. Black borrowers median FICO score of 626; the median FICO score for White borrowers is 751.
Because of lower income profiles and debt obligations, Black and Hispanic homebuyers have higher DTI ratios on average than White homebuyers. For example, Black homebuyers pay an average of 41 % of monthly income to creditors compared to 37 percent for White homebuyers.
III. Directions for Public Policy and the Real Estate Industry
The following policy recommendations are intended to address the current and systemic issues presented in Sections I and II of this report.
- Institute aggressive loan forbearance and credit reporting mandates to protect Black homeowners and potential homebuyers from financial devastation due to the COVID-19 pandemic
- Establish Federal-level rent relief and eviction bans to help Black homebuyers and potential homebuyers nationwide
- Continue the CARES Act suspension of federal student loan payments, debt collections, and zero interest provisions through the end of the pandemic crisis.
Congress & the President
- Issue an Executive Order to prioritize Black homeownership as a policy goal.
- Restore fair housing regulatory protections and enforcement, e.g. Furthering Fair Housing (AFFH) rule and HUD’s 2013 regulation formalizing the Fair Housing Act’s disparate impact standard.
- Reform the secondary market system and strategically align the roles of the Fannie Mae, Freddie Mac, FHA, and their regulators.
- Refocus the GSEs’ original mission, which at least since the 2008 crisis has failed to serve the Black community in any meaningful way.
- Appoint FHFA as a regulator along with CFPB
- Require Enterprises to hold seller-servicers accountable for compliance with Fair Lending and other consumer protection laws
FHA & HUD
- Provide additional support for technological innovation for FHA and VA.
- Expand and reform the FHA Title I rehab loan program, and to include rehabilitation loan purchases in the GSE ‘Duty to Serve’ regulations.
- Reform the HUD 203k program.
- Revise the Community Reinvestment Act to modernize banks’ requirements to serve Black communities in ways that do not exacerbate gentrification and segregation.
- Leverage Regulation B of the Equal Credit Opportunity Act, Section 1002.8, who allows for special credit programs for economically-disadvantaged groups.
- Create a restorative African-American Homeownership program, like HUD’s Section 184/ Native American Housing Program.
- Expand enforcement of Dodd-Frank Section 349 on Diversity and Inclusion
- Introduce and pass the American Dream Down Payment Savings Plan Act. This bill would create tax-advantaged plans designed for down payment savings.
- Adopt the Employer Participation in Repayment Act proposed in 2020 for employers to provide tax-free student loan debt repayment.
- Expand the Housing Trust Fund and the Capital Magnet Fund, financed by Fannie Mae and Freddie Mac.
- Expand the Low-Income Housing Tax Credit (LIHTC) program with extended affordability requirements.
- Require that Opportunity Zone funds be directed to long-term residents versus investors.
- Establish a Renaissance Neighborhood Program to bolster Black homeownership in historically redlined neighborhoods and transform communities.
- Establish a Minority Homeownership Marketing, Outreach and Assistance program.
Mortgage Industry Actions
- Increase FHA lending and other down payment assistance programs in areas with low Black homeownership rates.
- Reduce the mortgage insurance requirements for FHA borrowers.
- Eliminate Loan Level Price Adjustments (LLPAs).
- Re-assess risk-based pricing and capital requirement policies that disadvantage Black borrowers.
- Alter the treatment of student loans in the DTI formula to include only the reported payment amount.
State & Local Government Actions
- Evaluate inclusionary zoning programs and their effects on Black communities.
- Update state fair housing and fair lending laws to add needed protections not found in federal law.
- Step up enforcement of these laws, by requiring more training, conducting more investigations, and sanctioning violations.
Real Estate Industry Actions
- Expand self-regulation to promote fair housing and fair lending access, and prevent the proliferation of problematic practices, such as arbitrary underwriting guidelines.
- Leverage industry influence to demand that industry participants comply with Fair Housing or other laws that affect Black communities.
- Increase diversity in the real estate and mortgage industry, especially in senior leadership, and encourage minority business utilization.