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. Forty-one percent of Black home buyers and 39% of Latino home buyers used FHA loans in 2019, according to the Mortgage Bankers Association.
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 firstname.lastname@example.org
Corrections & Amplifications
This story was corrected September 21, 2020 to fix the misstatement that said Black borrowers accounted for 41% and Latino borrowers 39% of FHA loan originations in 2019.