Homeownership is the cornerstone of the American Dream. Homeownership and the American Dream are two entwined concepts that led to George W. Bush proclaiming June as the National Homeownership Month intending to assist “more Americans achieve that dream.”   His proclamation further went on to state that homeownership has helped families prosper, improve community stability, and promote civic engagement.

“My Administration is working to provide all families with the tools and information they need to accumulate wealth and overcome barriers to homeownership,” then-President Bush wrote. Well, while for some time this turned out right, we can only look back with a historic side-eye given how excessive lending led to the worst financial crisis of the decade.

The journey to rectify that mistake has been relatively long and slow, and some communities are still struggling to claw their way out. However, since 2015, the Hispanics have seen remarkable historic gains in homeownership. These gains have helped prop up a very shaky market. Hispanics are purchasing homes faster than other groups in the country. In fact, the State of Hispanics Homeownership 2019 shows that the homeownership rate in Hispanic communities has increased from 45.6 to 47.5 in the last four years.

Unfortunately, like so many other minority groups in the country, barriers to homeownership still exists for many first-time homebuyers, and the Hispanic communities are no exception. And while most would-be buyers can afford the monthly mortgage payments, they often have difficulty in saving for the upfront costs of homeownership like the down payments and the closing costs. The problems that Hispanics face in their journey to homeownership are not unique. Below we have outlined some of these issues.

Shortage of Inventory

Over the last few years, the housing supply and demand equations have been imbalanced. A lack of available housing inventory remains to be the leading barrier to further advancing sustainable Hispanic homeownership growth.

A report by Zillow in December 2019 indicates that there were 7.5 percent fewer homes on the market than the year prior, which marked 2019 as the lowest level ever to be recorded since the group began tracking inventory data.

In the same year, the United States Census Bureau reported a record low homeowner vacancy rate (HVR) at 1.4 percent, matching the lowest level ever to be recorded in 1993. The HVR is the proportion of the homeowner inventory that is vacant for sale. The rate for the top 75 MSAs has been declining every year since the year 2008.

There has been an imbalance when it comes to the proportion of inventory with these shortages more pronounced in the states and Metropolitan Statistical Areas (MSAs) with high concentrations of Hispanic residents. Among the Top 10 MSAs with the lowest HVR, half have a Hispanic population of 10 percent or even higher, and over a quarter of those have a Hispanic population of 20 percent or higher.

Zoning and Restrictive Land Use

One of the problems pushing low inventory levels even further down is the restrictive and exclusionary zoning practices. These have stifled new developments in much of the country. To mitigate density, the local administrations are disproportionately zoning the cities for single-family dwelling units.

For instance, in California, it is illegal to build anything other than a single-family home in more than 75 percent of the state’s neighborhood, although accessory buildings are allowed. But this is not unique for California alone, cities like Seattle, Washington (81 percent), Charlotte, North Carolina (84 percent) and Arlington, Texas (89 percent) are zoned almost entirely for the single-family residences.

The problem with zoning and restrictive land-use is that it has resulted in urban sprawl, longer commute times, and the displacement of lower-income residents. The zoning laws have not only been detrimental to the housing market alone, but it has also been detrimental to the U.S. economy as well. Researchers at the University of Chicago’s Booth School of Business estimate that land constraints lowered the aggregate U.S. growth by 36 percent from 1964 to 2009.

Credit Characteristics

Freddie Mac analyzed the homebuyers between 2012 and 2018, and it identified the factors that are most influential to homeownership. The company listed being aged between 36-45, married, with higher incomes and FICO scores as the variables that most drove up homeownership.

One characteristic most unique to the Hispanics is that they are young and just as likely to be married as the general population but have the highest labor force in the country—the participation rate among all the demographics, all characteristics with a positive correlation with homeownership. When controlling for other factors, the biggest drivers of the homeownership gap between Hispanics and non-Hispanic White families are debt-to-income ratios (DTI) and credit scores.

Credit Scores

This is another factor impacting homeownership gains among the Hispanic community. In 2018, Hispanics had a median FICO score of 684, compared to 722 for the overall population and 742 for non-Hispanic Whites. Some of these differences can be traced or attributed to a knowledge gap and thin credit files, but we cannot ignore the role of lower credit scores, which can be attributed to age.

Older adults are more likely than younger adults to have higher credit scores.

The general trend is that as the Hispanics age, so does their credit score increase to level with those of non-Hispanic Whites. This is one factor that will impact the Hispanic homeownership positively.

“Today, the overall Hispanic Today, the overall Hispanic median credit scores more closely align with the credit scores of young millennials overall (678) and older millennials overall (688).”

“This can be attributed to the fact that 62.9 percent of Hispanics are 37 or younger. Nevertheless, investing in resources to bridge the knowledge gap, particularly for young Latinos, is imperative.”

Debt-To-Income Ratios

This is a personal finance measure that compares an individual’s monthly debt payment to his or her monthly gross income. Hispanics suffer from credit management, which means a higher DTI than the general population.

The Hispanics have a median household income of $51,404 and are concentrated in high-cost areas. Among the buyers in 2018, the median DTI was around 42 percent, compared to the general population at 38 percent. In the same year also, 41.2 percent of the Hispanic homebuyers that year had a DTI above 43 percent and more alarming is that over a third were above the 45 percent marker.

Since the mortgage industry heavily relies on the DTIs to qualify prospective homeowners, credit worth Hispanics stands disproportionately vulnerable.

As it is, homeownership challenges are not unique, they cut across every community, but I believe that with the right support and guidance, homeownership can be a reality for every family in every community. As such, The Power Is Now Media has put up a great team of agents known as VIP agents who are spread across the country and ready to assist you in the journey to homeownership. To check whether we have agents in your county, click the following link https://thepowerisnow.com/vipagentsservices/.  You can also contact me directly for a referral if we do not have an agent in your area.  Stay up to date with current real estate news and housing developments by visiting our blogs page at https://thepowerisnow.com/blog/ daily.   If you’d like to set an appointment and speak to me directly, use the following link, https://calendly.com/thepowerisnow/ericfrazier.

Disclaimer: The views and opinions of Eric Lawrence Frazier are his own and do not necessarily represent views of First Bank or any organization affiliated with Eric Lawrence Frazier, or the Power Is Now Media Inc.  First Bank is an Equal Credit Opportunity Lender. Eric Lawrence Frazier MBA is also a Vice President and Mortgage Advisor with First Bank.  NMLS#461807 and a California Licensed Real Estate Broker DRE# 01143482. Email:  Eric.frazier@fbol.com.  Ph: 714- 475-8629.

Eric Lawrence Frazier MBA
President and CEO
The Power Is Now Media Inc.

 

Sources of Work

https://fred.stlouisfed.org/series/RHVRUSQ156N

https://www.investopedia.com/terms/d/dti.asp

https://nahrep.org/press-releases/2020/04/07/nahrep-releases-state-of-hispanic-homeownership-report-finding-hispanic-homeownership-rate-increased-again/