The blog of the Urban Institute
February 27, 2020

Why Do Black College Graduates Have a Lower Homeownership Rate Than White People Who Dropped Out of High School?

February 27, 2020

Our research on the 30 percentage point gap between Black and white homeownership rates has revealed a concerning finding: Black college graduates have significantly lower homeownership rates than white college graduates and slightly lower rates than white households without a high school diploma.

This gap exists partially because Black households are generally younger than white households. But a closer look at the data reveals four additional reasons young, college-educated Black households have lower homeownership rates than white households who are similarly or less educated:

  1. Single women make up a larger share of young, college-educated Black households than white college-educated households and households without a high school diploma. Their single incomes, combined with the gender pay gap, make homeownership harder to achieve.
  2. Young Black college graduates have lower FICO scores than young white households without a high school diploma. Lower credit scores are a disadvantage when applying for a mortgage.
  3. Young Black college graduates have higher incomes but much greater debt than white households without a high school diploma, making their debt-to-income ratios higher and creating an additional barrier to qualifying for a mortgage.
  4. The parental wealth and homeownership rates of college-educated, young Black households is significantly lower than that of college-educated, young white households, and parental support significantly increases the likelihood of owning a home.

Black college graduates younger than 35 have lower homeownership rates than white college graduates and those without a high school diploma

The homeownership rate of Black college graduates is higher than white households without a high school diploma for those ages 35 and older. However, for those younger than 35, Black college graduates have significantly lower homeownership rates than white college graduates and a slightly lower homeownership rate than white households without a high school diploma.

This pattern has been persistent. Between 2000 and 2017, the homeownership rate of white households ages 35 years and older without a high school diploma averaged 32 percent, 2 percentage points higher than Black college graduates.

 

figure 1

What is causing the 19 percentage point difference in the homeownership rate between similarly educated Black and white people and the 2 percentage point difference between highly educated Black people and white households without a high school diploma among adults younger than 35?

1. Single women head a higher share of black college-educated households

Sixty-one percent of Black college-educated households are headed by single women, compared with 48 percent of white college-educated households and 44 percent of white households without a high school diploma.

Female-headed households have lower marriage rates than male-headed households and therefore, have two income strikes against them: married couples generally have higher incomes because both bring home paychecks, and, because of the persistent gender pay gap, women generally have lower incomes than men.

Studies find marriage and childbirth trigger homeownership, and just 27 percent of these college-educated young, single Black women have children, considerably fewer than 68 percent of young, single white women without a high school diploma. (our analysis using American Community Survey data in figure 2)

 

figure 2

2. Black college graduates have lower credit scores

According to data from Freddie Mac, the median FICO scores of Black households with a bachelor’s degree and a graduate degree were 623 and 636, respectively, lower than the median credit score of 680 for white households without a high school diploma. The median FICO scores of similarly educated white households were 728 and 737, respectively.

The Freddie Mac data also show that Black college graduates are less likely to have a FICO score because of infrequent transactions in the credit systems. About 16 percent of Black college graduates in the credit system had missing FICO scores.

Although a similar share of white households without a high school diploma had no FICO scores, FICO scores were missing for only about 7 percent of white college graduates. Since credit scores are a critical variable in the mortgage underwriting process, it is troubling to see that most Black college graduates have lower median credit scores than the least-educated white households.

figure 3

3. Black college graduates have more debt

Although Black college graduates have higher household incomes than white households without a high school diploma, their incomes are still significantly lower than white college graduates. The average household income of a Black college graduate is $68,000, almost $30,000 more than a white household without a high school diploma, but about $25,000 less than white college graduates.

Black college graduates hold more overall debt than white college graduates, despite their lower incomes. The average overall debt of Black college graduates is almost $40,000, over $6,000 more than white college graduates and almost $3,000 more than white households without a high school diploma.

According to our analysis using the Panel Study of Income Dynamics, student debt, on average, accounted for 83 percent of the total debt for Black college graduates and 70 percent of the total debt for white college graduates between 2011 and 2017. Overall, a smaller share of white college graduates (56 percent) have student debt than Black college graduates (77 percent).

Higher debt increases the debt-to-income ratio for Black college graduates, adding another barrier to homeownership.

figure 4

4. Parental wealth and homeownership status also disadvantage Black college graduates

Parental wealth and homeownership status are highly correlated with homeownership. Our research shows these two factors explain about 12 percent of the Black-white homeownership gap for young adults.

This difference is not the main contributor to the 2 percentage point difference between Black college graduates and white households without a high school diploma. The homeownership rate of the parents of young Black college graduates is similar to that of parents of young white households without a high school diploma, at 67 and 65 percent, respectively. Average parental wealth is slightly higher for young Black college graduates.

But parental wealth could well be a significant contributor to the 19 percentage point gap between Black and white college graduates. The homeownership rate of parents of white college graduates is 92 percent, 25 percentage points higher than their Black counterparts. And the average parental wealth of white college graduates is almost 10 times more than that of Black college graduates.

Fewer parental homeowners and lower parental wealth mean Black college graduates are less likely to receive parental support, such as down payment assistance, and are more likely to have higher debt-to-income ratios, as they have more student loan debt, both being barriers to homeownership.

figure 5

The data discussed here suggest higher education itself will not close the Black-white homeownership gap. Additional factors, such as differences in location and credit scores, marriage rates, debt levels, income and parental wealth, and homeownership status contribute to the homeownership disparities as well.

Although the homeownership rate of Black college graduates eventually catches up and ultimately exceeds that of white households 35 and older without a high school diploma, delayed homeownership can have a long-term effect on future housing wealth. Our research shows that those who bought their first homes before age 35 accumulate higher housing wealth near retirement age.

As we research how the growing gap in Black homeownership threatens to exacerbate racial inequality for decades to come, these new findings shed light on what stands in the way of homeownership for young, college-educated Black Americans. Policymakers can use this information to develop effective solutions to help this population.

Amari Micheaux, a junior at Howard University in Washington, DC on February, 05, 2020. Photo by Marvin Joseph/The Washington Post via Getty Images.

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