Even as mortgage interest rates hit record lows, fueling home-buying, Black Americans lost ground on homeownership, the gap between Black and white owners growing.
Eboni Taylor searches online for a home every day.
Taylor, 35, and her husband Andarius have been trying to buy a house in Detroit for a year. But student loan debt, the costs of living and competition with buyers who can pay hundreds of thousands of dollars in cash have kept their dream out of reach.
“How many times I’ve gotten my hopes up,’’ says Taylor, who’s the Michigan executive director for the advocacy group Mothering Justice.
During the COVID-19 pandemic, mortgage interest rates have plunged to their lowest levels on record, fueling home-buying.
But just as Black people disproportionately lost their health and jobs during the pandemic, they also lost more ground on homeownership. The gap between Black and white owners widened, hardening a divide that’s resulted in the typical white family having eight times the wealth of the typical Black family.
At the end of 2020, the Black homeownership rate was 44.1%, virtually the same as the 44% who owned homes during the same period in 2019, according to an analysis of Census Bureau data by the Center for American Progress. The homeownership rate for white Americans rose to 74.5% from 73.7%.
“When there’s an economic shock like we’ve seen with this pandemic, it’s often the case that Black people take two steps back while white people take two steps forward,’’ says Andre M. Perry, a senior fellow with the Brookings Metropolitan Policy Program and the author of “Know Your Price: Valuing Black Lives and Property in America’s Black Cities.”
The Black homeownership rate was on going up at the start of the decade, rising to 47% in the second quarter of 2020, up from 40.6% a year earlier, according to the Federal Reserve Bank of St. Louis.
“The different changes in homeownership rates between Black and white families show that opportunities to build wealth moved further and faster out of reach for Black families than for white families,’’ says Christian Weller, a senior fellow with the Center for American Progress, who co-wrote the analysis and is a professor of public policy at the University of Massachusetts, Boston. “Yet Black families actually need to build wealth faster than white families because they typically have a lot less to begin with.”
During much of the pandemic, the average 30-year-fixed mortgage rate hovered at 3.07%, according to the Mortgage Bankers Association. Mortgage rates fell to record lows more than a dozen times in 2020, and this past January the average rate dipped to 2.65%, the lowest on record, according to mortgage-finance company Freddie Mac.
But a number of factors made it harder for Black buyers to take advantage of lower borrowing costs.
Black Americans lost their jobs at a higher rate than white Americans during the pandemic, says Daryl Fairweather, chief economist for the national real estate brokerage Redfin.
White people were more likely to be able to work from home, allowing them to more easily relocate to places where they could better afford a home, Fairweather says, and were more heavily invested in a soaring stock market.
“Wealth creation was concentrated among people who had the wealth to begin with, and again that’s going to skew more white than Black,” Fairweather says.
Before the coronavirus hit, “The Black employment rate was improving,” Fairweather says. “When employment improves and incomes improve, that’s when you start to see homeownership rates improve. The pandemic derailed that.’’
Nakitta Long, 45, who lives in Winston-Salem, N.C., wants to buy a home. But the mother of four lost her job with a car-maker at the start of the pandemic, struggled to pay rent, and was evicted from her rental home in April.
“We’ve been homeless ever since,” says Long, who’s now working full time but has had trouble finding housing because of her eviction and spotty credit. “I would have never thought in a million years that me and my kids, at this point in my life, would have to use a P.O. box for our address.”
She’s studying for a real estate license.
“I want to buy property for my family to never go through what I’m going through,’’ she says. “My mom doesn’t have any property. She’s living in the same apartment we grew up in. . . I’m hoping to break that cycle.”
Systemic inequities and outright bias have long hindered Black Americans’ ability to buy or hold onto the property. Redlining prevented Black Americans from getting mortgages for decades. Restrictive covenants barred Black residents from buying homes in white neighborhoods, and Black property owners were often displaced when expressway construction of split Black communities.
Also, Fairweather says that “Black people have been discriminated against in their employment meant they were earning less and less able to afford to buy a home. That persists today.”
Black people were disproportionately targeted for predatory loans that contributed to the housing crash and recession of 2008. Many suffered damage to their credit when they were unable to keep up with payments loaded with exorbitant interest rates or lost homes that were worth less than they’d paid for them.
Black buyers often work overtime to save money to buy a home. A Redfin analysis found 30% of Black respondents got an extra job in order to afford their first house versus 22% of whites.
Black first-time homebuyers tended to make more than their white counterparts, with 21% making at least $150,000 a year as compared with 11% of first-time white homebuyers. Also, 58% of white buyers made less than $50,000 a year when they bought their first home versus 34% of Black homebuyers with a similar income — a gap that might be due in part to Black buyers having to meet higher lending standards, Fairweather says.
If borrowing costs escalate, homebuyers who missed out on record low-interest rates could find themselves with “less revenue for the same amount of house,’’ Perry says.
You start with “less equity,” he says, which means less to put towards other expenses.
Even when interest rates are low, borrowers with significant debt or minimal down payments could get turned down for the lowest-cost loan.
“This is where discrimination shows up in credit scores,” Perry says. “Black people take out more loans, and that’s a direct result of just not having as much wealth … We’re compromised in terms of our debt-to-income ratio, which hurts you in terms of what interest rate you get if you qualify.”
And because even Black workers with college degrees tend to make less than their white peers, it can be tough to save enough to compete in the bidding wars that have been a hallmark of the heated housing market, Perry and others say.
Taylor found a home she hoped to buy for her family, which includes two sons, ages 3 and 4. But another buyer offered $240,000 in cash.
“I can’t compete with that,” she says. “My husband and I don’t have $150,000 to $250,000 in cash to just put down.”
While her husband pursues a doctorate, Taylor is going for a second master’s degree, in business administration, in “hopes we can get to a place where we can become higher earners.”
The Taylors have put aside $10,000 and are working with a program that assists first-time homebuyers. Still, “We’re not in a position … to even get to that basic point of moving out of our 400-unit building,’’ she says.