Racial Gaps in Homeownership, Home Equity, Wealth Widened During Economic Expansion; Student Debt Weighs Down Potential Homeowners

Mike Sorohan msorohan@mba.org

August 01, 2019

Redfin, Seattle, said homeowners in primarily white neighborhoods gained an average of $70,000 more in home equity than homeowners in primarily black neighborhoods from 2012 to 2018.

A separate report from Clever.com said increased student debt, combined withhousehold incomes remaining more or less stagnant for bachelor's degree holders and high interest rates, has made it "incredibly difficult" for graduates to pay down their debt.

Redfin said in part as a result of the inequality in homeownership and home-equity gains, black Americans have seen their median net worth decline in the past decade while for white Americans it rose by double digits. While U.S. home prices have risen 73 percent since first quarter 2010, homeownership rates among all Americans dropped 3 percentage points to 64.1%. Still, 73.1 percent of white Americans owned homes as of the second quarter of 2019, compared with a record-low of 40.6 percent for black Americans and 46.6 percent for Hispanic & Latino Americans. The resulting 32.5 percentage-point gap in homeownership between black and white Americans is 3.6 points wider than it was at the beginning of 2010. Meanwhile the homeownership gap between white and Hispanic & Latino Americans widened by half a point.

"With higher unemployment rates and less wealth to begin with, black Americans were less able to buy homes even when prices were at their lowest point, meaning many missed out on opportunities to build wealth and put down roots in their communities through homeownership," said Redfin chief economist Daryl Fairweather. "The growing racial homeownership gap has widened the wealth gap, as home equity remains one of the most significant wealth-building tools. And now, with higher home prices and tighter lending standards than before the housing crash of 2008, it's more difficult than ever for minorities to break into the housing market. That's likely to contribute to growing economic inequality in the U.S."

Redfin compiled data on homeownership rates, home equity, net worth and unemployment by race. Other report data:

--The homeownership rate for black Americans dropped 5 percentage points to 40.6% in second quarter 2019 from 45.6% in first quarter 2010. The rate for white Americans dropped just 1.4 percentage points, from 74.5% to 73.1%, over the same period. The homeownership rate for Hispanic & Latino people fell 1.9 points (from 48.5% to 46.6%). The nationwide rate dropped 3 points to 64.1%.

--The homeownership gap between black and white Americans widened over the past decade to a 32.5 percentage-point gap in second quarter 2019, from a 28.9 percentage-point gap in first quarter 2010.

--The homeownership rate remained above 70% for white Americans from 2010 through first quarter 2019, but it never surpassed the 50% threshold for black Americans.

--Homeowners in primarily black neighborhoods saw smaller dollar gains in home equity ($120,800) from 2012 to 2018 (the most recent full year for which data is available) than those in Hispanic/Latino and white neighborhoods. Homeowners in primarily white neighborhoods saw a gain of $190,935 during the same time period, and they started and ended with the most equity in dollars. Homeowners in primarily Hispanic & Latino communities gained $206,000 in equity.

--Home prices in majority-black neighborhoods rose 24.9% from 2012 to 2018, higher than the 21% gain for Hispanic & Latino communities and the 12.5% gain for white communities.

--Homeowners in majority-black neighborhoods saw the biggest percentage gain in equity (213%), but started with substantially lower equity in the homes than white and Hispanic & Latino neighborhoods.

--The home-equity gap between black and white Americans widened slightly from 2012 to 2018, from $67,229 to $70,135.

--The median net worth for black Americans dropped 2.8% to $17,100 in 2016 (the most recent full year for which data is available) from $17,600 in 2010. That leaves the typical black American more than $10,000 short of the 20% down payment ($27,980) likely needed to purchase a median-priced home in Detroit, one of the most affordable major housing markets in the U.S.

--Median net worth rose 18.5% to $171,000 during the same period for white Americans.

--The net-worth gap between black and white Americans increased 22.8% to $153,900 in 2016 from $125,300 in 2010.

--Hispanic & Latino Americans saw their median net worth increase by 15.1% over the six year period to $20,600, also well below the typical down payment for a home in Detroit.

--In 2010, the ratio of white to black net worth was 8:1. By 2016, the ratio had widened to 10:1.

--The unemployment rate for black Americans dropped 10.5 percentage points to 6% in June 2019 from 16.5% in January 2010, while the rate for white Americans fell 5.5 percentage points to 3.3% over the same time period.

--The unemployment gap between black and white Americans has narrowed substantially since the beginning of 2010, from a 7.7 percentage-point gap to a 2.7-point gap.

The report can be accessed at https://www.redfin.com/blog/black-americans-homeownership-rate.

Meanwhile, the Clever.com report, Homeownership Delayed: Unforeseen Consequences of Rising Student Debt (https://listwithclever.com/real-estate-blog/student-debt-homeownership-study/), said as of July, Americans owe $1.59 trillion in student debt, an average of $37,172 per debtor. According to the Federal Reserve, that's more than three times the country's total student loan debt in 2006.

As the same time, said author Tommy Shaughnessy, household incomes have remained more or less stagnant for bachelor's degree holders, which, coupled with high interest rates, has made it incredibly difficult for graduates to pay down their debt. "To be able to pay off their college loans, many young adults are making sacrifices in other aspects of their life," he said. "The most common is delaying homeownership."

Key report findings:

--Student debt will have a serious impact on the housing market. 48% of college students with student debt said they're going to put off buying a house

--Undergraduates with student debt are pushing back homeownership by seven years

--Younger generations are feeling the burden of student debt. Millennials expect to spend four times more than Baby Boomers on education-related expenses

--80% of undergraduates with student debt are taking on part-time jobs, full-time jobs or odd jobs to support themselves through college

--Undergraduates with student loans are 8x as likely to take out an additional personal loan and 71% more likely to use a high-interest credit card, perpetuating a cycle of debt for lower-income families

--53% of millennials expect to become homeowners between the ages of 26 and 36. In reality, only 37% of millennials were able to become homeowners in 2015

--College students don't understand debt: 76% of students believe it will take 15 years or less to pay off their debt, but research shows it takes 21 years on average, and over half of college students don't know the interest rates on their student loans

"A bachelor's degree is, theoretically, worth about $2.8 million over a lifetime, but it's difficult for many students to see the light at the end of the increasingly-long debt tunnel," Shaughnessy said.

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