The gap in racial equity that persists in many facets of American life impacts home ownership as well.
Among Black families, 44% owned their own home as of the first quarter of this year compared to 73.7% of white families, according to the U.S. Census. And that disparity is even greater depending on the city, according to an analysis of census data by the national real estate brokerage Redfin.
Homeownership is critical to the accumulation of wealth and a factor in the stark difference between the net worth of white families, which was $171,000 in 2016, versus Black families who had a net worth of $17,150 according to Brookings Institution.
While a house itself can be the inheritance passed on to the next generation, a family can tap a property’s equity to fund a child’s college education, start a business or give a child or grandchild the down payment to buy a home of their own.
“The mechanism of wealth funnels across all of those different areas,” says Taylor Marr, Redfin’s lead economist.
Black families experienced a slight uptick in homeownership in the past year, inching up from 41.1% during the first quarter of 2019. But that progress is threatened by the coronavirus pandemic which is disproportionately affecting both the physical and financial health of Black Americans.
“The previous economic expansion benefited Black Americans in terms of wage and job growth, which helped many folks make progress toward homeownership in the last year,” Marr says. “However, Black families have been hit harder economically by the coronavirus pandemic and many have lost their jobs which could stall further improvements in homeownership.”
A tale of two cities
The ownership gap is widest in Minneapolis, a city that has become an epicenter of the nationwide fight for racial justice in the wake of the death of George Floyd, a Black man who died after a white police officer pinned him down with his knee on his neck.
Only a quarter of Black families in that city own their home, the lowest rate in the nation among metro areas with more than 1 million people according to census data from 2018, the most recent year available. Meanwhile, 76% of white families in Minneapolis own their residences. That is the widest gap between Black and white homeowning households in the U.S.
Washington, D.C., had the highest level of Black homeownership at 51%. And with 72% of white families owning their homes, the racial gap there was the narrowest.
Multiple obstacles have hindered the ability of Black Americans to buy property, from the lingering impact of redlining, a practice now outlawed, to continuing income inequality.
Redlining was a discriminatory practice that prevented Black homebuyers from getting mortgages, restricting them to certain neighborhoods where property values lagged due to bias and a lack of investment.
“That released a cycle of segregation that continued decade after decade even after redlining was suspended by fair housing laws,’’ Marr says.
More recently, Black people were disproportionately targeted for the predatory loans that contributed to the housing crash and deep recession that struck in 2008. Many suffered damage to their credit profiles when they were unable to keep up with payments loaded with exorbitant interest rates or lost homes worth less than what they’d paid for them.
“That lingers today and limits people’s ability to get a loan,” Marr says. “If they do get approved, the terms are less favorable.”
Minneapolis has been impacted by all of those issues, says Chris Prescott, Redfin’s market manager for Minnesota.
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Historically, restrictive covenants barred Black residents from buying homes in white neighborhoods, and beyond Minneapolis, still sometimes appear in deeds though they are now illegal. African Americans were also displaced when major freeways cut through their communities making “it difficult for Black Minnesotans from the start,” Prescott says.
“Then you look at income and employment,” he says, ”A Black family makes about half of what a white family makes … Wages are lower and in turn housing options are lower. It’s been systematic issues present for a long time that’s made it difficult for Black people to get ahead in Minnesota.”
Black residents in Washington, D.C., meanwhile, have likely benefited from property being passed down within families, says Thomas Mathis, a Redfin agent in the district.
“A number of people held onto the houses they already owned,” he says. The federal government, along with private companies, also offers good-paying jobs that can make it easier to purchase real estate.
Black homeownership rates remain lowest in US
Rates as of first quarter of 2020
SOURCE U.S. Census Bureau
Bridging the gap
Changes to zoning laws that would allow more affordable townhouses and duplexes to be built alongside single-family homes could help address the ownership gap, Marr says.
More people could also qualify for a mortgage if utilities and other payments are considered when compiling a person’s credit score.
“Even controlling for income and down payment and neighborhood, minorities are still denied mortgages at a greater rate than whites are,” he says. “Some of the reasons are due to credit history … Credit scores can be reformed to include things like rents or utilities that don’t traditionally make it into credit scoring.”
“Pocket listings,” when homes are shown only to those in a broker’s private network, also need to be discouraged since they can exclude Black buyers, even if such discrimination is unintentional, Marr says.
Though the Fair Housing Act, passed in 1968, banned discrimination based on race, religion and gender when selling, renting or financing a home, bias on the part of some sellers, brokers or lenders can still crop up, realtors say.
“One of my agents said that even recently he felt he was denied the opportunity for housing based on his skin color,” says Prescott. “We need people to be aware today that this is something that needs to stop and we need to make change right now because it is a real problem that people can’t ignore any longer.’’