Immigrants ‘Closing Gap' on Native-Born in Homeownership

Sorohan, Mike msorohan@mba.org

October 14, 2016

Trulia, San Francisco, said when it comes to the American dream of homeownership, immigrants are closing the gap on the native-born.

In a report (https://www.trulia.com/blog/trends/immigration-nation/), Immigration Nation: Homeownership and Foreign-Born Residents, Trulia data scientist Mark Uh said the homeownership rate for immigrants (foreign-born U.S. residents) is slowly gaining ground against that of domestic-born residents. Separately, states where immigrants have resided in the United States for longer periods boast higher rates of immigrant homeownership.

"Today, those born outside the U.S. trail those born in the U.S. in homeownership rate," Uh said. "However, the gap has been shrinking since 2000. The foreign-born are doing well in some states, not so great in others."

The report noted the gap in homeownership rates between native-born U.S. residents and foreign-born immigrants has been cut to 15.4 percentage points from 20.7 percentage points in 2001. After two decades (1994-2015), the homeownership rate of domestic born residents is roughly unchanged while that of foreign born residents increased 2.3 percentage points. New York and California have the biggest foreign-born populations but have dramatically different immigrant-homeownership rates compared to native-born residents--in New York, the gap between the two cohorts is 20.1 percentage points while in California, that gap is only 9.7 percentage points.

The report also noted how long immigrants lived in the country has a big influence on whether they own a home. Immigrants who lived in the U.S. less than five years had a much lower homeownership rate than immigrants who lived in the U.S. for 10+ years in every state.

"This is likely due to the fact that immigrants who lived in the U.S. less than five years do not have adequate credit history in the U.S. to obtain a mortgage, which forces them to rent rather than own," Uh said. "Thus, those states with a greater proportion of foreign-born having lived in the U.S. for longer durations saw higher rates of homeownership. Concurrently, the higher the homeownership rate of foreign-born households, the more likely it is that the difference in homeownership rate between foreign-born households and U.S.-born households is smaller."

Last year, the Mortgage Bankers Association issued a research paper, Housing Demand: Demographics and the Numbers Behind the Coming Multi-Million Increase in Households, showing the housing demand surge will be driven by Hispanics, Baby Boomers, Asian-Americans and Millennials (http://mba.informz.net/MBA/data/images/15292_Research_Growth_White_Paper.pdf). It noted nearly 16 million households are expected in the U.S. housing market by 2024, which should lead to much greater demand for both renter- and owner-occupied housing.

MBA Vice President of Research and Economics Lynn Fisher said with an average of 1.6 million additional households per year, housing market growth over the next decade could be among the strongest the U.S. has ever seen.

The report said household growth will include 5.5-5.7 million more Hispanic households in 2024 than in 2014; 3.4-5.0 million more non-Hispanic White households; 1.8-1.9 million more Asian households; 2.4 million more African-American households; and 730,000-890,000 more "other" households, including Asian-Americans. Growth will be driven by Baby Boomers, with 12.3-12.9 million more households age 60 and over in 2024 than there are today. Millennials will also be a key component of growth raising the ranks of households age 18 to 44 by 4.1-5.1 million.

"Household formation has been depressed in recent years by a long, jobless recovery," the study said. "Favorable economic and demographic trends will combine to create strong growth in both owner and rental housing markets. The precise mix will depend on the degree to which consumer choices, the relative cost of owning vs. renting and government policy's impact on access to credit favor one or the other."

Earlier this week, the Urban Institute, Washington, D.C., in its own report, Why the Low Hispanic Homeownership Rate Matters (http://www.urban.org/urban-wire/why-low-hispanic-homeownership-rate-matters), noted problems continue to persist for minorities who aspire to homeownership.

"Families of color will make up 43 percent of the nation's population by 2030," wrote the report's authors, Jim Parrott and Yamillet Payano. "Yet, families of color have, on average, a much harder time getting a mortgage than do white families. Will the housing market contract as these families become the nation's majority, or will the mortgage market become more inclusive to accommodate a more diverse population?"

The UI report noted some of this lower homeownership rate can be accounted for by the lower average age of the Hispanic population. The median age in the Hispanic population is 28, compared with 42 in the white population. "Younger people tend to have lower credit scores and less wealth built up, making it harder for them to enter the housing market," the report said. "It is often especially hard for younger Hispanics, as they are less able than whites, on average, to rely on the wealth of their parents in the purchase of their first home."

But the lower homeownership rate for Hispanics is also driven by weaker credit, UI said. "This difference in credit score is especially impactful in today's overly tight credit environment," the report said. "The average credit score for a borrower today is about 40 points higher than it was back in 2000--by most accounts a healthy time for the market--and overall, the market is simply taking on much less credit risk that it was back then. With their lower average credit scores, Hispanics are disproportionately affected by this tightening, particularly at the Federal Housing Administration."

However, Parrott and Payano said the answer to the challenge of lower Hispanic homeownership is not to loosen market standards to accommodate families who cannot afford to be homeowners. "We have done that before and it was devastating, not only to the economy but also for many of the intended beneficiaries, who found themselves able to purchase homes with loans they could not sustain," they said. "The answer is instead to increase the number of families who are in the financial position to be homeowners and to ensure that the market effectively serves all who are."

UI called on "clearing up the regulatory and legal haze that continues to hang over lending and servicing, particularly at FHA. Until then, it will be almost impossible for the market to expand to serve the entirety of the credit box, and millions of families whom policymakers have deemed financially sound enough to be homeowners will remain unable to obtain a mortgage."

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