Home >> Daily Dose >> Breaking Down the Nation’s Homeownership Rate
Print This Post Print This Post

Breaking Down the Nation’s Homeownership Rate

house-on-earthFor millions, homeownership is a fundamental part of the American Dream, a goal shared equally among us, regardless of race or ethnicity. But while the goal is equally shared, the path to both reaching and maintaining homeownership is too often radically different among different races.

In 2015, overall mortgage denial rates continued their years-long decline, a sign of the slow but steady march back towards normalcy in the mortgage market. Still, this general improvement masks stark differences in mortgage denial rates between whites and minorities, according to a recent Zillow analysis of mortgage application, approval and denial data from the Home Mortgage Disclosure Act (HMDA).

Last year (the latest year for which data is available), total applications for both conventional mortgages and FHA-backed loans rose by 7.8 percent and 14.3 percent, respectively. And at the same time as the number of applications rose, overall denial rates fell—to 13.9 percent for FHA loans (from roughly 17 percent in 2014) and 10.4 percent for conventional loans (from about 11 percent in 2014). That mortgage credit overall is getting easier to secure is undoubtedly encouraging news for would-be home buyers otherwise struggling with low inventory, intense competition, and rising home prices.

But that good news is muted when examining mortgage denial rates by race. Hispanic applicants for a conventional loan were denied 17.3 percent of the time in 2015; black applicants were denied in 22.4 percent of cases. For FHA loans, black and Hispanic denial rates were 19.6 percent and 15.5 percent, respectively.

Denial rates for white applicants in 2015 stood at just 8.7 percent for conventional loans, and 11.4 percent for FHA-backed loans.

There are a number of variables at play in these differing results, including persistent racial differences in credit scores, earnings, education levels, accumulated wealth, and a host of other factors. And unfortunately, HMDA data alone doesn’t allow us to determine how large a role (if any) overt discrimination or racism may play in these disparities. But that should not offer much comfort.

The sad truth is that these stark and persistent differences in mortgage denial rates are reflected in overall homeownership rates. As of Q3 2016, the national homeownership rate stood at 63.5 percent (non-seasonally adjusted), up modestly from Q2 but still hovering near 50-year lows, according to the U.S. Census Bureau. But again, looking only at the overall rate ignores dramatic racial differences. While more than half of white and Asian U.S. households owned a home at the end of Q3 (71.9 percent and 53.3 percent, respectively), less than half of black and Hispanic households are homeowners (41.3 percent and 47 percent, respectively).

That the black homeownership rate, in particular, is so low relative to whites should come as no surprise—that gulf has remained as wide as it is for more than a century. But more recent history helps illuminate the troubling differences in minority access to mortgages and, in turn, minority homeownership rates. The housing boom and bust was felt across America and impacted all races. But its most damaging impacts may have been reserved for black and Hispanic communities, and its effects remain outsized in lower-income communities that are, too often, communities of color.

Hispanic communities (those in which Hispanic individuals make up a larger share of the population than any other group) were hit hardest by the housing boom and bust, with home values falling 46.2 percent from the height of the bubble to the bottom, according to a 2014 Zillow analysis of HMDA data and home values. Home values in predominantly black communities fell 32.3 percent over the same period. In white and Asian communities, home value declines were also dramatic, but far less so—home values fell by 23.6 percent and 19.9 percent in those areas, respectively.

And according to the same study, median home values themselves in black and Hispanic communities were already lower to begin with than in white and Asian communities—in effect, the housing bust hit those communities hardest that already had less room to fall. And when home values fall to that degree, the consequences are dire. Negative equity—in which a homeowner owes more on their mortgage than their home is worth—skyrocketed in the aftermath of the housing bust, especially among lower-valued homes. Even after years of steady improvement, the negative equity rate among homes valued in the bottom one-third of all homes (19.4 percent) remains almost three times higher than the negative equity rate among top-third homes (7.3 percent), according to the Q2 2016 Zillow Negative Equity Report.

Being in negative equity increases a homeowner’s odds of being foreclosed upon, if for no other reason than because it is incredibly difficult for a distressed homeowner to sell their home if it is underwater without undergoing a lengthy, uncertain, and often costly short sale. And while the foreclosure crisis impacted millions of Americans regardless of race, it was more severe among lower-valued homes like those found in sometimes less well-off black and Hispanic communities. Of all homes foreclosed upon nationwide after December 2006, 46.7 percent were in the bottom third of all homes in terms of value, compared to only 16.6 percent of foreclosed homes in the top third.

Foreclosure does more than strip the title of a home away from a homeowner—it also strips away any and all wealth a homeowner had in the home, both invested up front in the form of a down payment and accumulated over time through home value appreciation and built-up equity. When a homeowner put little or no money down, that wealth may have been small or even non-existent. But for those that made even modest down payments—and depending how expensive a market is, a “modest” down payment is still often tens of thousands of dollars—that wealth was also wiped out.

And those homeowners foreclosed-upon during the recession never got to realize the sometimes huge increases in their homes’ values during the recovery—and the big gains in wealth that would come with it as home values rise past their initial purchase price. After the housing market hit bottom, home values started rising quickly again—especially among recently foreclosed, bottom-tier homes often seen as screaming bargains by investors looking to buy cheap but livable homes and convert them into rentals.

If foreclosed black and Hispanic homeowners had been able to hold on, they would have been able to see their home’s equity—and therefore their wealth—increase. In fact, throughout the entire recovery, previously foreclosed homes showed greater annual appreciation than homes in general, peaking at 12.4 percent in January 2014, and falling to 6.8 percent by April 2016. Overall U.S. home values, over the same time, reached a high of 7.9 percent annual growth in April 2014, with growth slowing to a pace of 4.9 percent by April 2016.

There is no small amount of irony in the fact that, after foreclosure, laws prohibited millions of former homeowners from buying again for seven years, and so many blacks and Hispanics were forced to rent the exact same kind of homes they may have owned only a few years prior. What’s more, these homeowners exchanged the relative stability and predictability of a monthly mortgage payment for the instability of rent—which has been rising steadily for years and is becoming increasingly unaffordable.

And there’s still more to learn through the benefit of hindsight. It’s likely that many hardworking black and Hispanic homeowners found ways to hold on to their homes through the first few years of the recession, only to be foreclosed upon later—which actually turned out worse for them than simply giving the home up in the early years. A homeowner foreclosed on in 2007 would have theoretically been able to buy again in 2014, and may have realized some of the gains in housing of the past few years. But a homeowner that held out desperately only to finally succumb to foreclosure in 2010 or 2011 won’t be able to buy again until 2017 or 2018.

Given this context, it is unsurprising that black and Hispanic homeownership rates are much lower than their white and Asian counterparts—they are denied for home loans more frequently, and were more apt to live in homes harder-hit by the housing recession and subsequent foreclosure crisis. This impacts not only their homeownership, but also their personal wealth and that of future generations, since so much of a family’s inherited wealth is typically stored in the family home.

But this is America, and there remains room for optimism. In Q3, the Hispanic homeownership rate rose from 46.1 percent in Q3 2015 to 47 percent—the only racial group to see a year-over-year bump in homeownership. More importantly, blacks and Hispanics themselves remain confident both in the value of homeownership and in their ability to achieve it.

According to the most recent Zillow Housing Confidence Index, blacks and Hispanics were more likely than whites and Asians to consider homeownership integral to the American Dream. Of Hispanic respondents surveyed, 68.3 percent agreed that owning their own home is necessary to live the American Dream, followed by 64.6 percent of black respondents. Less than 60 percent of white and Asian respondents agreed. Additionally, 71.7 percent of Hispanic renters and 70.3 percent of black renters surveyed said they were confident or somewhat confident in their ability to afford to own a home one day, compared to 55.4 percent of whites and 58.9 percent of Asians.

Continued confidence and optimism among Americans-of-color—even in the face of overwhelming challenges—will be critical in ensuring the stability of the housing market as demographics shift in coming years and these groups grow both in cultural influence and economic clout. The housing market overall is performing strongly these days, but there are obstacles, and the scars of the recession have yet to fully heal—especially in black and Hispanic communities that were among the hardest hit.

And it’s wise not to take the now half-decade-long housing recovery for granted. Sales of both existing homes and new homes have been tepid in recent months. If sales volumes are to really break out, it will need to be driven in no small part by continued and sustained growth in homeownership rates among non-white Americans.

About Author: Svenja Gudell

Dr. Svenja Gudell is the Chief Economist of Zillow. She joined the company in 2011 and leads Zillow’s economic research team, a recognized voice of impartial, data-driven economic analysis on the U.S. housing market.
x

Check Also

Survey: Homeownership Remains Elusive for Baby Boomer Renters

A recent look into housing affordability by NeighborWorks America has found that three in five long-term baby boomer renters feel homeownership remains unattainable.