The voices of Urban Institute's researchers and staff
December 16, 2016

Minority homeownership surged in these eight cities, but will success last?

December 16, 2016

Mortgage lending increased approximately 19 percent between 2013 and 2015. As our updated interactive map shows, in almost all parts of the country, mortgages for white borrowers increased far more than mortgages for minority borrowers.

Minority home mortgages increased more than white home mortgages between 2013 and 2015 in eight cities. Yet minority buyers in those places experienced a virtual roller coaster. In all eight cities, the ride began with a homebuying surge during the housing boom, followed by a plunge during the bust and a subsequent surge during the recovery.

Minority borrowers hit the housing market at the worst time and while some have recovered, too many are still paying for the bad timing.

Minorities are taking out more mortgages, but still aren’t getting their fair share

Minorities’ share of purchase mortgages went up from 2013 to 2015 as well. During that period, the share of purchase loans made to African Americans increased from 4.8 percent to 5.5 percent, and the Hispanic share grew from 7.3 percent to 8.3 percent.

But while the increase in mortgages made to white borrowers has kept pace with or exceeded population growth, our analysis of census population data and Home Mortgage Disclosure Act data shows that was not the case for minority borrowers. The share of mortgages made to African Americans was well below their share of the population until the height of the housing boom in 2005–06, when the mortgage share came closer to the population share. The boom coincided with a period of extraordinarily lax lending standards and the proliferation of risky products. After the housing market began to crumble, the African American share fell again.

HMDA chart

The Hispanic share of mortgage originations exceeded the population share from 2004 to 2006—also largely coincident with a period of lax underwriting and risky products—but has fallen sharply since.

Why do we only see modest increases for minorities?

Modest wage growth, tight credit standards, student loan debt, and loss of equity during the recession could explain the mortgage market’s slow recovery, especially for minorities. For example, average wealth went up 6.4 percent for white families from 2001 to 2013, while African American and Hispanic wealth declined 6.2 percent and 6.6 percent, respectively. Minority loss of equity during the recession is making it harder for homeowners to move up and is squeezing the next generation, as parents cannot help their children with a down payment.

Overly tight credit standards are also creating problems. Between 2009 and 2015, 6.3 million mortgages that would have been made under 2001’s reasonable credit standards were not made. Federal Reserve analysis of Home Mortgage Disclosure Act data and Consumer Credit Panel/Equifax data show that the FICO scores of all borrowers, including minority borrowers, have improved considerably in the postcrisis period. But minority borrowers’ FICO scores remain concentrated in the lower range, while white borrowers’ FICO scores tend to be substantially higher. 

What do the success stories tell us?

To better understand why minorities are lagging behind, we identified the top five metropolitan statistical areas (MSAs) for African American and Hispanic borrowers; two MSAs overlapped, so we ended up with eight. In these MSAs, the growth rate of minority loan originations between 2013 and 2015 exceeded the growth rate of white originations.

But this surge doesn’t tell the whole story. Looking further back at these MSAs, we see that fewer purchase mortgages were issued to minority than white borrowers in the recession and postrecession period between 2006 and 2013.

The most successful areas for minorities, then, show big ups and big downs. Given the significant financial and psychological costs involved in both buying and losing a home, this variability makes homeownership a riskier proposition than in places with greater stability.

HMDA table

Future implications

Tight credit standards and missing loans are only part of the story when it comes to understanding the uneven effects of the housing recovery on minorities. Understanding whether minority households are sharing equitably in increased mortgage originations also requires examining the growth in the number of households in minority communities and what is happening to income, wealth, and credit.

This will become even more important as the number of young minorities grows rapidly and they reach the age when homebuying traditionally begins. Addressing what is keeping minority shares low will ensure that originations keep up with demographic trends. Taking a closer look at areas with rapidly growing minority originations might be a good place to start.

 

Family members visit around their dining table at the home they bought in the Riggs Park neighborhood of Washington D.C., Wednesday, July 28, 2015. Photo by Allison Shelley/For The Washington Post via Getty Images.

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