During the COVID-19 pandemic, Black and Latino homeownership increased more than white homeownership, with Black and Latino homeownership rates increasing by 2 and 2.5 percentage points, respectively, while the white homeownership rate increased just 1 percentage point. On its surface, this difference may seem surprising, as people of color disproportionately experienced higher rates of job loss and were more likely to miss rental and mortgage payments because of the pandemic.
But with historically low interest rates making homeownership more affordable, a much larger share of Black and Latino households, who are more likely to rent in their prime homebuying ages, took advantage. In our new analysis, we find that young, high-earning, highly educated borrowers across all racial and ethnic groups, but especially Black and Latino households, drove the rise in homeownership rates. We also find that Black and Latino homeownership could have increased more if Federal Housing Administration (FHA) borrowers had faced less resistance in the housing market compared with borrowers with more resources.
Given the sharp rise in interest rates beginning in early 2022, some signs have emerged that the progress observed from 2019 to 2021 has reversed, as homes have become significantly more unaffordable. To continue to close the racial homeownership gap, policymakers should consider enacting legislation that supports the ability of households of color to access homeownership.
Young, high-earning, and educated Black and Latino borrowers capitalized on low interest rates
Coming out of the Great Recession, millennials’ homeownership rate lagged behind that of the previous two generations at the same age. As millennials are both the largest and most diverse generation, this lag in part contributed to a widening of the racial homeownership gap. But after years of delayed homeownership, millennials are finally starting to catch up.
Our analysis finds a shift toward younger borrowers between 2019 and 2021, particularly among Black and Hispanic households. Across all racial and ethnic groups, homebuyers younger than 45 increased from 51 percent in 2019 to 55 percent in 2021. This change was largest for Black homebuyers younger than 45, whose share increased by 5.3 percentage points, compared with a 4 percentage-point increase for Latino homebuyers and a 3.5 percentage point increase for white homebuyers.
As the housing supply shortage became acute during the pandemic, the market became more competitive, with many homebuyers induced by low interest rates. In general, households with high incomes and high educational attainment were more likely to access homeownership, with the share of loans made to borrowers with annual incomes above $75,000 increasing by nearly 4 percentage points. The growth in the shares of Black and Latino borrowers with incomes above $75,000 outpaced that of white borrowers, but most high-income white households were already homeowners, which partially explains the smaller magnitude of growth.
Black and Latino homebuyers also experienced larger income increases than did Black and Latino households as a whole, with the median among Black and Latino homebuyers increasing by about 9 percent and 7 percent, respectively. The shares of Black and Latino homebuyers with a bachelor’s degree or more education also increased more than any other racial or ethnic group between 2019 and 2021, increasing from 36 percent to 42 percent for Black homebuyers and from 30 percent to 37 percent for Latino homebuyers.
The upward shift in homebuyer incomes and education was coupled with an increase in property values. Specifically, the median property values for Black and Latino borrowers increased by 22.2 percent and 24.5 percent, respectively.
With more competition for homes, government loans (from the FHA and the US Department of Veterans Affairs, or VA) were less attractive to sellers because they take longer to close than cash offers and have stricter property condition requirements than conventional loans. Between 2019 and 2021, the share of FHA home purchase loans declined from 18.4 percent to 15.3 percent, and the share of VA loans declined from 9.5 percent to 8.3 percent across all racial and ethnic groups. Households with low incomes and wealth, young households, and Black and Latino households are more likely to use FHA or VA loans, which indicates that if government loans were equally attractive to sellers, we could have observed a larger increase in Black and Latino homeownership.
How policymakers can maintain this trend to close the racial homeownership gap
Although 2022 American Community Survey and Home Mortgage Disclosure Act data are not yet available, recent surveys indicate that the growth in Black and Latino homeownership has not continued at the same pace now that interest rates have risen. The first-time homebuyer share in 2022 dropped to 26 percent from 34 percent in 2021, and the median age of first-time homebuyers reached 36, an all-time high. The share of Black homebuyers declined by 3 percentage points, and the Latino share increased by 1 percentage point, both substantially lower than the 6 percentage-point increase in the share of white homebuyers.
From these preliminary data, it is clear that mitigating racial disparities in homeownership, especially in the current high-interest-rate environment, requires well-designed and well-implemented solutions. Although the low-rate environment and other economic conditions during the pandemic unleashed some pent-up housing demand among households of color, the majority of these households are still renters and face barriers to homeownership.
Several policies could continue this momentum despite a sharp rise in interest rates. Targeting down payment assistance to first-generation homebuyers can lower mortgage costs, allowing homebuyers with fewer resources to be more competitive in the market. Implementing special purpose credit programs for borrowers or neighborhoods of color could play a similar role. Additionally, incorporating positive rental payment history in mortgage underwriting would disproportionately help borrowers of color, as they are more likely to be renters and are more likely to have no or low credit scores. To bring back some of the benefits of historically low interest rates, targeted mortgage rate buydowns geared toward low-income borrowers could be particularly effective.
In the long term, policymakers can tackle systemic barriers that affect income, education, and other opportunity outlooks for people of color. The longer we allow these systemic gaps to persist, the harder it will be to close the racial homeownership gap, especially in a tight housing market.