Housing Recovery Still Struggling in Minority Communities

As the housing market continues its slow march toward recovery, new data suggests the climb remains steeper for minority races.

Based on Zillow's latest homeownership data, the company estimated in a report on Monday that 12.4 percent of applicants who applied for a conventional mortgage loan in 2013 were denied.

While the denial rate for white applicants was slightly better than the national average at 10.4 percent and only a little worse for Asians at 13.3 percent, black and Hispanic applicants stood a much higher chance of being turned down, posting denial rates of 27.6 percent and 21.9 percent, respectively.

That disparity also shows up in homeownership rates by race:  According to fourth-quarter data from the Census Bureau, 72.3 percent of non-Hispanic whites own a home compared to just 42.1 percent of blacks, 44.5 percent of Hispanics, and 55.3 percent of "all other races," a category that includes Asians, Native Americans, and Pacific Islanders.

Though there are a number of factors likely related to the racial gap in loan approvals, including income and employment rates, Zillow Chief Economist Stan Humphries says that judging by the data, "it's clear that the housing playing field remains strikingly unequal in this country."

Other statistics released recently indicate the apparent racial disparity in the mortgage system may actually not be as pronounced. In a report late last year, researchers at the Urban Institute found that, when adjusting mortgage denial rates to exclude borrowers with near-perfect credit, the gap in denial rates between races is lower: 34 percent for white applicants, 41 percent for Hispanics, and 45 percent for blacks.

"[T]he latest [denial rate] numbers show that racial gaps are not the major challenge on credit accessibility," researchers wrote at the time. "The key challenge is that the mortgage market is excluding half the borrowers with weaker credit profiles, including minorities."

Credit accessibility isn't the only major setback that minority groups have seen in the last few years, though. According to Zillow, while home values in predominantly white and Asian areas have returned or come close to their prior peaks, Hispanic and black neighborhoods still have a long way to go.

By the company's estimates, home values in predominantly Hispanic areas fell an average 46.3 percent from their pre-recession peaks when the national housing market hit its bottom. Black communities also saw a larger decline at 32.1 percent.

In some of those areas, such as Los Angeles' largely black and Hispanic communities, home values remain off of their pre-recession peaks by 20 percent or more.

On a positive note, Zillow says the difference in home values can be explained at least partially by geographical trends. For example, many Asian neighborhoods are located on the West Coast, where growth in the country's hottest markets has sent home values rocketing. On the other hand, many Hispanic-dominated neighborhoods are dotted around some of the more volatile markets in the Southwest and Southern California, explaining their rapid rise and fall in the boom-bust period.

Furthermore, Humphries says there are reasons to be optimistic when it comes to both home values and mortgage approvals for minorities.

"Home values in black and Hispanic communities are expected to rise faster over the coming year, and the data shows that Federal Housing Administration-backed loans have proven to be a viable and critical source of financing in minority communities," he said.