Higher Interest Rates Spell Disaster for Racial Housing Gaps

According to Urban Institute authors Michael Neal and Daniel Pang, the current environment of rising interest rates has important implications for the wealth gap between white and Black or Hispanic households. While the “standard narrative” is that higher interest rates, especially when combined with higher home prices and stagnant, if not lower incomes reduces affordability for households of color relative to white households. 

“In turn this implies that these households of color will find that achieving homeownership has become more difficult thereby widening the racial wealth gap,” the authors said. “This report illustrates that under a higher mortage rate regime, the pace of principal reduction is slower over most of the life of a 30-year fixed-rate mortgage.” 

Using family-oriented housing in Newark, New Jersey as its sample, the report also reveals that Black and Hispanic households purchasing property in the city typically receive less favorable interest rates than their white counterparts. 

To summarize, the authors suggest that local policymakers assess the benefits of interest-rate buy-downs as a way to subsidize affordability close racial wealth gaps in housing, and better insulate historically marginalized communities from macroeconomic shocks.

To view the report in its entirety, click here.