By Amara Omeokwe
The housing market has led the recovery from the
pandemic-induced economic downturn as Americans have rushed to buy
homes amid a desire for more living space and record-low mortgage
rates.
But some analysts warn even as the housing boom bolsters the
overall economy, it may widen the longstanding gap in homeownership
between Black and white Americans. That could have broader
implications for wealth disparities since homes are a core source
of wealth for most Americans.
The potential challenges are on several fronts. Mortgage
providers tightened lending standards as economic conditions
worsened, which could particularly hurt Black Americans' ability to
finance home purchases.
Black Americans' health and employment have also suffered
disproportionately from the virus, which could make it harder
either to buy a home or avoid losing one they already have.
"The opportunity for people to use this as a time to transition
into buying is probably going to be less for Blacks. How great that
difference is, it's too early to say," said Chris Herbert, managing
director at the Harvard Joint Center for Housing Studies.
Black people have historically been less likely to own homes
than whites in part due to lower incomes, and in part due to "the
history of redlining, various discriminatory practices that kept
Black people from owning homes," said Kristen Broady, policy
director at the Hamilton Project, a liberal think tank. After the
foreclosure crisis that accompanied the previous recession, the
black homeownership rate slid to 41% in early 2019 from 48% in
early 2007. The gap with the white rate soared to 32 percentage
points.
With Black Americans less able to pass property to their
children, that aggravated the racial wealth gap. Black families'
median net worth was $17,600 in 2016 compared with $171,000 for
white households, according to Federal Reserve data. For white
families who owned homes, their house, net of mortgage debt, was
worth $215,800 on average, compared with $94,400 for Black
families.
But in late 2019 a turnaround began: As Black unemployment fell
to historic lows, the Black homeownership rate began to rise,
hitting 47% in the second quarter of 2020, the highest since 2008.
The gap with white families narrowed to 29 percentage points. (Some
experts cautioned the second-quarter 2020 data may be unreliable
because the pandemic caused the Census Bureau to change how it
conducted the survey.)
Mark Fleming, chief economist at First American Financial Corp.,
said, "The health of the labor market was really beginning to
affect everyone across the income spectrum and, of course, if you
have income and you can save some money, you can buy a home."
The pandemic and the ensuing economic crisis now threaten to
reverse that progress. Michael Fratantoni, chief economist at the
Mortgage Bankers Association, said because Black people saw more
severe pandemic-related job losses, they are likely seeing greater
loss of income.
"Given the tightening in credit, that could then pose some
hurdles to home buying," Mr. Fratantoni said, though he said that
should ease if the overall economic recovery continues and the
public-health crisis is contained.
Even as plunging mortgage rates fuel demand, lenders have
tightened standards on who can get a mortgage. A mortgage credit
availability index from the Mortgage Bankers Association plummeted
roughly 33% between February and August, to its lowest since March
2014. This has likely fallen most heavily on Black buyers. For 2018
mortgage originations, the median FICO credit score for Black
borrowers was 691, compared with 748 for white borrowers, according
to an Urban Institute analysis of government data.
Tomeka Givens, a Realtor with Guerilla Realty LLC in the greater
Baltimore area, said she saw many lenders raise minimum
requirements for credit scores to 700 from the 620-to-680 range
when the pandemic hit.
"The vast majority of my clients of color were in that
620-to-680 range, so it knocked a lot of people out of the running
for mortgages," Ms. Givens said.
This has also affected mortgages backed by the Federal Housing
Administration and by federally controlled Fannie Mae and Freddie
Mac. In part, this reflects higher fees charged by Fannie and
Freddie to guarantee mortgages that they consider a higher risk
because they quickly go into forbearance.
Because FHA loans usually have lower down-payment and credit
requirements, stricter standards will likely have a greater impact
for first-time home buyers, especially Black and Latino ones, said
Mr. Fratantoni. Black borrowers accounted for 41% and Latino
borrowers 39% of FHA loan originations in 2019, according to the
MBA.
Affordability challenges pose another threat to the Black
homeownership rate, according to Daryl Fairweather, chief economist
at Redfin. A recently released Redfin analysis found home prices
rose more in census tracts where Black people were more likely to
buy homes compared with areas where white people buy, likely
because of lower inventory.
Even as Black people contend with potentially higher hurdles to
buying a home, those who already own homes face an increased risk
of losing them, according to Alanna McCargo, vice president at the
Housing Finance Policy Center at the Urban Institute.
She cited high-frequency Census Bureau survey data showing that
during the pandemic, more Black and Latino Americans deferred or
didn't make mortgage payments and were less confident about making
future mortgage payments. This raises the risk of foreclosure when
current moratoriums expire.
"Way too many people of color lost their homes during the last
crisis," Ms. McCargo said. This time, she said policy proposals
should prioritize outreach to homeowners who may be delinquent on
mortgage payments or participating in forbearance programs, to
ensure they have long-term support to avoid foreclosures.
"If you continue to lose people, we're going to continue to see
the disparities," Ms. McCargo said.
Write to Amara Omeokwe at amara.omeokwe@wsj.com
(END) Dow Jones Newswires
September 20, 2020 11:14 ET (15:14 GMT)
Copyright (c) 2020 Dow Jones & Company, Inc.