Can the mortgage market handle the surge in minority homeownership?
Our recent analysis of homeownership trends found an impending surge in the non-white population of homeowners—one that our current mortgage market is ill-suited to serve.
Minority homeowners will rapidly increase
The coming decades will see rapid growth in minority households, particularly Hispanic households. According to our analysis, over three-quarters of household growth from 2010 to 2020 and 88 percent of the growth from 2020 to 2030 will be among minorities. In both decades, the largest segment of that growth will be in Hispanic households. From 2010 to 2020, whites are the second largest group at 23 percent. But in the following decade, whites drop to 12 percent and the broad “other” category (Asians, American Indians, and people of other or more than one race) takes their place at 24 percent, followed by African Americans at 20 percent.
Out of the 22 million new households from 2010 to 2030, renters will grow by 13 million and homeowners by 9 million. More than half of the new homeowners are likely to be Hispanic, 11 percent black, and 29 percent people of other races.
A large group of whites will become new homeowners in the coming decades as well, notably, the aging millennials. But as millennials move out of rentals into new homes and the white baby boomers leave their homes behind, the two will nearly balance out, leaving the total growth in white homeownership from 2010 to 2030 at a relatively small 7 percent.
Hispanics as a group are younger and just entering the prime years for forming families and buying homes, so they don’t have much of this balancing effect. Only 6 percent of senior households in 2010 were Hispanic, and the median age of Hispanics in the U.S. in 2010 was only 27—compared with 41 for whites. As a result, Hispanics’ homeownership rate will rise between 2010 and 2030 from 47 percent to 48 percent.
While the number of African American homeowners will rise—their 11 percent share of new homeowners actually will exceed whites’ share—we expect the black homeownership rate to decline fairly dramatically and the gap between the black and Hispanic population to widen. This trend has already begun. In the 2010 Census, the homeownership rate for African American households was 44 percent, versus 47 percent for Hispanic households. By 2030, we project that only 40 percent of African American households will own their homes, versus 48 percent of Hispanic households.
Policies and practices need to adjust
The declining African American homeownership rate does not just reflect differences in age—it reflects a failure of policy and market trends to address the African American homeownership gap.
In every age group, current trends and policies are widening the ownership gap between African Americans and other groups. This gap reflects two fundamental factors:
First, African American homeownership was particularly battered in the housing crisis, sharply reducing household wealth among African American families and dramatically lowering the long-term prospects for recovery for black homeownership at all ages. Second, African Americans continue to lag other races and ethnicities in employment, wages and income. These factors together contribute to a bleak homeownership forecast for African American families without dramatic changes in policy.
The increasingly minority and disproportionately Hispanic composition of the new homeowners highlights the need to widen the credit box by incenting lenders to ease their credit requirements, as well as to develop credit standards that adequately reflect the financial capability of this group. For example, many Hispanic families have more than two incomes, a reality not accounted for in traditional mortgage underwriting. The erosion of African American homeownership needs to be addressed by more than just mortgage policy; African Americans face unique challenges in education, employment, and criminal justice, all of which hinder their ability to achieve economic security and accrue assets.
Photo by Beth A. Keiser/AP