Today, the United States is home to more than 18.8 million Latino households, and projections predict that number will increase to nearly 26 million by 2040, with more than half of all new households created in that time being Latino. But homeownership trends are not keeping pace. 

The Latino homeownership rate is still 20 percentage points below that of white households. Without major policy changes, even the most generous projections predict that gap will persist for the next several decades.

If policy barriers to homeownership remain for Latino households, the US will see a decrease in overall homeownership rates along with significant racial wealth disparities, which could stifle economic growth. To avoid a stagnated economy and to give Latino households the resources they need to own a home, policymakers can work to improve climate resiliency, housing affordability, and housing supply.

The largest barriers in the housing market disproportionally affect Latino homeownership

It’s no secret that there are problems in the housing market. The country is in the midst of an acute affordable housing crisis and is 1.5 to 5.5 million units short of what’s needed to accommodate the entire population. With home price increases far outpacing income gains, the homes that are available are unaffordable. Climate change has also made homeownership riskier and costlier—millions of homes need to be updated to be resilient to storms, floods, and even extreme cold and heat.

These issues are hitting Latino households particularly hard, as these households are concentrated in high-cost housing markets with low inventory. Latino households are also more likely than other households to live in counties that are considered high risk for flooding but are less likely to receive federal aid and disaster preparedness and relief resources.

Further, our housing finance system is steeped in structural racism. Latino applicants are denied conventional financing for home purchase loans at more than double the rate that white applicants are. The borrower characteristics that underlie lending decisions—both outcomes and loan terms—disadvantage Latino people at nearly every turn.

Latino people are more likely to have low or no credit scores because of historical discrimination in banking practices and cultural differences. Latino households are also more likely to engage in informal and enterprising work and to report earnings from self-employment. But income verification standards make it difficult for mortgage applicants to report non-W-2 income, which can artificially increase debt-to-income ratios among Latino mortgage applicants.

In addition, less access to intergenerational wealth in the Latino community can leave potential buyers with comparatively smaller down payments. As homebuying has become more competitive, down payment shares have increased among all homebuyers. Although Latino households increased their average down payment share between 2018 and 2022, the gap in down payment shares between Latino households and white households actually widened because more white households can draw on family wealth, some of which was earned through parental homeownership.

Encouraging Latino homeownership could benefit the entire market

Creating policies that can improve the homeownership outlook for Latinos would also reduce the barriers that all potential homebuyers currently face. Boosting climate resiliency, lowering home prices, and increasing the housing supply are all necessary starting points. More can also be done to garner support around targeted programs, such as first-generation down payment assistance and tax-free savings accounts for down payments. These policy changes could also reinvigorate a stagnant housing market that has locked many households out of their homebuying dreams.

Updating the credit score system to incorporate monthly payments like rent, phone bills, and utility payments could increase scores for Latino households and other low-score borrowers, thus improving their homebuying opportunities without increasing lenders’ risk. As the share of those working in the gig economy grows, making it easier to report self-employment earnings on mortgage applications would disproportionately improve opportunity for Latino households.

The barriers to homebuying for Latino communities have hindered wealth-building opportunities for Latino households and stifled economic growth for all. More importantly, with our housing system not adapting to the needs of a changing market, more and more people are missing out on their American dream.

By acting now to improve housing opportunities for Latino communities, policymakers can begin to address inequality that could hold back these families and the entire US economy for generations to come.