For decades, the homeownership gap between African-Americans and the White Americans has been increasingly widening. African-Americans have historically been less likely to own homes compared to the Whites, due to the historical records of redlining, accompanied by various discriminatory practices. The COVID-19 pandemic’s onset only added fuel to the fire and exposed the underlying homeownership racial disparities in the U.S.
The pre-existing wide racial homeownership gap in America is mostly attributed to the following aspects;
- Most Black people earn low incomes, which makes it hard to save to buy a house.
- Tight lending standards by mortgage providers make it hard for most Black people to finance home purchases.
- The history of redlining of prospective Black homebuyers.
- Systematic discriminatory practices deeply enrooted in the U.S systems.
The housing market and economic recovery.
As the impacts of the COVID-19 pandemic threatened to tear apart the U.S economy and lead the country into recession, the housing market played a significant role in its recovery. This happened as many Americans rushed to buy homes to satisfy the need for more space as they take advantage of the historically low mortgage rates.
As the housing market leads the economy towards recovery, analysts warn that this could widen the long-standing homeownership gap between African-Americans and the Whites. “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.
The Black community has always been at a disadvantage when it comes to acquiring wealth through homeownership, attributed to the many hurdles between them and becoming homeowners. The income levels among the Black people have not increased yet, instead, the situation has worsened during the pandemic; redlining and systematic discrimination are still within our society; this always has the Black community at a disadvantage when it comes to financing, buying, and retaining homes.
Moreover, most African-Americans’ health and employment have borne the most suffering from the pandemic, which makes it even harder to buy a home or avoid losing the ones they have. The Chief economist at the MBA, Michael Fratantoni, stated that African-Americans saw more severe pandemic-related job losses and are likely seeing a greater loss of income.
“Given the tightening in credit, that could then pose some hurdles to home buying,” Mr. Fratantoni stated, adding that the situation should ease if the overall economic recovery continues and the public-health crisis is contained. Indeed the situation could ease, but it will take more than the overall economic recovery and the containment of the pandemic. It will require the provision of equal opportunities to all Americans and elimination of racial discrimination that undermines the Black people.
Low mortgage rates.
Even as low mortgage rates drive more demand, lenders have tightened standards on who can qualify for a mortgage. A mortgage credit availability index from the MBA dived roughly 33% between February and August 2020, the lowest since March 2014. This has likely fallen most heavily on African-American home buyers. According to an analysis by Urban Institute, mortgages originating from 2018 recorded a median FICO credit score for African-American borrowers was 691, compared with 748 for White borrowers.
According to the chief economist at Redfin, affordability challenges pose another threat to the African-American homeownership rate. Recently, Redfin released an analysis that indicated that home prices rose more in census tracts where Black people were more likely to buy homes, compared to areas where the Whites buy, probably because of low inventory.
Risk of losing homes.
Even as the African-Americans continue combating the hurdles that bar them from buying a home, those who already own homes face an elevated risk of losing them, according to the vice president at the Housing Finance Policy Center, at the Urban Institute, Alanna McCargo.
McCargo cited high-frequency Census Bureau Survey data indicating that more African-American and Latino Americans deferred or didn’t make mortgage payments and were less confident about making future mortgage payments during the pandemic. This increases their risk of facing foreclosure when the current moratoriums expire.
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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.firstname.lastname@example.org. Ph: 714- 475-8629.
Eric Lawrence Frazier MBA
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The Power Is Now Media Inc.