Nationwide, fewer households of color own homes relative to white households. This partly reflects the wide homeownership gap: 72 percent of white households own homes compared with only 42 percent of Black households and 48 percent of Hispanic households. This long-standing trend stems from structural barriers to homeownership and could be exacerbated by COVID-19. But also, 60 percent of the US population is white, and 30 percent of the population is Black or Hispanic (12 percent and 18 percent, respectively).
Our updated Newark Housing chartbook indicates that Newark, New Jersey, does not look anything like the rest of the United States. The homeownership rate in Newark is low, with rates for Black and Hispanic households (23 and 24 percent, respectively) near that of white households (27 percent). At the same time, the vast majority of homeowners in Newark (86 percent) are Black and Hispanic households.
Newark’s high concentration of Black and Hispanic households provides a backdrop against which to examine how the economic recession is affecting homeowners of color. Forbearance and foreclosure moratoriums have helped Newark homeowners remain in their homes and benefit from house price increases. But the ability to refinance has been significantly curtailed, shrinking a channel through which some Newark homeowners could reduce already-high cost burdens.
How COVID-19 has affected Newark homeowners
To gauge the pandemic’s effects on homeownership in Newark, we assess the city’s unemployment and house price trends—two key determinants of mortgage delinquency. Amid the current recession, Newark’s unemployment rate jumped from 6.2 percent in March 2020 to 22.3 percent by June. By the end of the year, Newark’s unemployment rate had fallen to 13.0 percent, considerably below its peak but more than double its March low. This compares with a national peak of 14.8 percent and a current level of 6.2 percent (as of February 2021).
The share of Newark homeowners that have a mortgage is higher than the national average. And amid an elevated unemployment rate, the share of Newark households with a mortgage in serious delinquency (either 90 or more days late or starting foreclosure) sits at 14.9 percent as of August 2020. Although this is less than half of its financial crisis–era high of 33.1 percent, a period when house prices were falling, the current rate is roughly 1.5 times its January 2020 level of 6.2 percent.
Institutional forbearance and foreclosure moratoriums have kept homeowners from losing their homes. Despite the recent sharp rise in the city’s serious delinquency rate over the first eight months of 2020, the foreclosure rate declined from 2.3 percent in January to 1.7 percent by August.
But at some point, the policies and programs keeping distressed homeowners from losing their homes will end. And even though recent home price appreciation in Newark has been strong, many borrowers still have negative equity at rates well above the national average. Despite strong growth in recent years, the higher-than-average share of homeowners with negative equity reflects the likelihood that median home prices in Newark remain below their housing boom peak.
Although a growing share of Newark homeowners have been unable to pay their mortgage as the unemployment rate has worsened, public policy has helped them keep their homes and benefit from higher home prices.
Accessing the benefits of low mortgage rates or equity may be difficult for many Newark homeowners
Forbearance programs have helped Newark homeowners maintain stability, but homeowners enrolled in these programs are not eligible for mortgage refinancing—another tool that can be especially beneficial to homeowners, especially during a period of still-low interest rates.
This could be particularly important for homeowners in Newark, where more than half pay homeowners’ costs (including mortgage payments, real estate taxes, insurance, utilities, fuels, and other housing fees) that are at least 30 percent of their income. Refinancing could help them reduce their mortgage payments or give them additional money to make important household expenditures.
But exiting forbearance to refinance doesn’t mean they will automatically be able to refinance their mortgage. Homeowners eligible for an agency refinance now face a higher threshold for obtaining one. Mortgage credit standards for agency mortgages, tracked nationwide, have tightened during the recession, particularly for refinances (agency mortgages accounted for 68 percent of Newark homes purchased with a mortgage in 2019). These tightening credit conditions make it more difficult for homeowners to benefit from low interest rates or access housing equity to weather the crisis. This is a significant barrier for Black and Hispanic households, who faced structural barriers to refinancing long before the pandemic.
How can policymakers help Black and Hispanic families maintain homeownership?
Newark shows how forbearance has helped Black and Hispanic homeowners avoid the consequences of missed mortgage payments amid a global pandemic that was no fault of their own. But the pandemic may have curtailed homeowners’ ability to take advantage of other strategies to maintain their homes. Here are a few actions policymakers can consider to improve homeownership stability:
- While the national economy recovers and more homeowners exit forbearance, policymakers can clarify refinancing rules. This is a key first step toward locking in low interest rates or accessing housing equity.
- Given continued high unemployment, many borrowers exiting forbearance will be unable to resume their pre-pandemic mortgage payments and will need a modification to stay in their home, and some may not be able to retain their home. Helping homeowners understand their options when they cannot resume making their pre-pandemic payments is critical.
- Giving homeowners with low incomes access to funds for home repairs could help them maintain homeownership in the face of a potentially catastrophic financial event. This could benefit homeowners of color because they are more likely than white homeowners to live in inadequate housing.
Homeownership is an important way to build generational wealth. These steps, if taken by policymakers across different levels of government, can help ensure that homeowners, particularly homeowners of color, can maintain homeownership, benefit from rising home values, and perhaps one day pass their home to their children.