By BCN Executive Editor Wesley Brown – For Black consumers who feel that the pandemic has left them in a harsher place, there is more shocking news on the home front – literally.
A new report by the National Association of Realtors and its sister online real estate listing website, Realtor.com, shows that the surging residential real estate market of the last two years has led to record-high home prices and record-low inventory. That “double trouble,” the report said, has made it increasingly difficult for consumers, particularly Black Americans, to achieve homeownership,
“The housing wealth gain has been sizable over the past two years,” said NAR Chief Economist Lawrence Yun. “However, due to the ongoing inventory shortage and rising interest rates, homeownership attainment will become especially challenging unless drastically more housing supply is available.”
The Double Trouble of the Housing Market report, released on Feb. 7 by the nation’s largest and most powerful trade group, examines the impact that rapidly escalating home prices and diminishing housing inventory has on housing affordability. Unlike previous affordability research and indices, NAR and Realtor.com considered affordability for all income groups, accounted for the affordability of homes currently available for sale instead of homes that have already sold and provided affordability data by race for the 100 largest U.S. metro areas.
Nationally, more than 400,000 fewer affordable homes are available for sale for households earning $75,000 to $100,000 when compared to the start of the pandemic (245,300 in December 2021 vs. 656,200 in December 2019). For that same income group, there’s one affordable listing available for every 65 households, a significant drop in availability from one affordable listing for every 24 households in 2019.
The total home valuation across the country is estimated to have risen by $8.1 trillion from the first quarter of 2020 through the end of 2021. However, this sizable increase in real estate values was not accompanied by a rise in homeownership as the ownership rate remained at approximately 65%.
For households with higher incomes, some expensive metro areas – San Francisco, San Jose, Washington, D.C., for example – surprisingly are more affordable than before the start of the pandemic due to increasing incomes and lower mortgage rates. Since 2019, household incomes rose 15% and 13%, respectively, in San Jose and San Francisco. However, while some households in these markets can afford to buy a greater share of homes, fewer options exist because of the record-low inventory. For example, households earning $100,000 to $125,000 in the San Francisco metro area can afford to buy 180 fewer homes now compared to December 2019. For households in San Francisco earning $125,000 to $150,000, there are about 300 fewer affordable homes available than in December 2019.
“In general, an increase in salary makes housing more affordable to a buyer. But due to the reductions in inventory over the last few years, today’s buyers in large tech markets can actually afford a smaller number of homes than they could two years ago, despite an uptick in wages,” said Realtor.com® Chief Economist Danielle Hale. “The low inventory challenge is particularly acute for some racial and ethnic groups who have faced greater hurdles to homeownership stemming from, among other things, lower incomes as a group.”
A significant and persistent racial homeownership gap exists in America. Since 2017, the annual homeownership rate for White Americans has remained comfortably above 70%; however, the homeownership rate for Black Americans has been slightly above 40% – nearly 30 percentage points lower. NAR and Realtor.com analyzed housing affordability by racial group to help explain the differences in homeownership. Nationwide, 35% of White households and only 20% of Black households have incomes greater than $100,000. Approximately half of all homes currently listed for sale (51%) are affordable to households with at least $100,000 income and substantial variances in affordability exist by metro area.
“Moreover, the homeownership rate has been around 50% for all households in the expensive metro markets, such as Los Angeles and San Francisco, and therefore it’s becoming nearly impossible to afford a home, especially for Black households,” Yun added. “At the same time, there are affordable markets that still provide opportunities to achieve homeownership as inventory at affordable price points is reasonably available.”
NAR and Realtor.com also identified the top 10 most affordable housing markets for Black households. In alphabetical order, the markets are Akron, Ohio; Baltimore, Md.; Birmingham, Ala.; Dayton, Ohio; Detroit, Mich.; McAllen, Texas; Memphis, Tenn.; St. Louis, Mo.; Toledo, Ohio; and Youngstown, Ohio. In these metro areas, Black households can afford to buy homes roughly in proportion to their income distributions.
The Black gap
NAR’s troubling analysis amid the nation’s booming housing market comes only one month after rival Zillow Corp. release a report that Black mortgage applicants are denied 84% more often than whites with same salary and credit background. (See story here).
In that Jan. 13 report, Zillow’s own analysis of data from the federal Home Mortgage Disclosure (HMDA) Act showing that while overall denial rates have decreased, Black applicants are increasingly more likely than white borrowers to be denied a mortgage.
At noted, the Black homeownership rate that ticked up before the pandemic has again begun to fall, spurred by a widening mortgage approval gap between Black and white applicants, according to the Seattle-based real estate data analytics firm. The new real estate mortgager’s study now shows that while overall denial rates have decreased, Black applicants are increasingly more likely than white borrowers to be denied a mortgage.
For example, Black applicants are denied a mortgage at a rate 84% higher than that of white applicants — a big jump from 2019, when the disparity sat at 74%. In the U.S., 19.8% of Black applicants are denied a mortgage, the highest among all races, and much higher than the 10.7% of white applicants who are denied.
Not surprisingly, Black applicants across the South have the highest mortgage turndowns with denial rates in Mississippi (31%), Louisiana (26.1%), Arkansas (26%) and South Carolina (25.8%) at the highest level.
“Homeowners have seen a plethora of housing gains during the pandemic, but the growing disparity between Black and white homeownership rates and home values paints the picture of who those winners actually are,” said Zillow economist Nicole Bachaud. “While credit borrowers overall are stronger now than ever, the gap in credit access is growing along racial lines. Policies and interventions that target the barriers keeping Black Americans from homeownership are keys to achieving housing equity.”
According to another NAR report released on Feb. 17, 2021, the Black homeownership rate – 42% – represents a Black-white homeownership gap of almost 30%. That compares to overall U.S. homeownership rate was 64.2% in 2019 and 69.8% for non-Hispanic white Americans. The homeownership rate for Asian Americans and Hispanic Americans at the beginning of 2021 was 60.7% and 48.1%, respectively.
In addition, the sobering reporting shows that Black households, at 43%, are more than twice as likely than white households – 21% – to have student loan debt, with a median student loan debt for Black households of $40,000 compared to $30,000 for white households.
But most disturbing was the fact that Black mortgage applicants were rejected for home loans at a rate 2.5 times greater than white applicants – 10% vs. 4%, respectively. Nationwide, 43% of Black households can afford to buy the typical home compared to 63% of white households.
In November 2020, the nation’s most powerful real estate trade group representing 1.5 million members through the residential and commercial real estate industry, laid bare its past sins that have prevented millions of Black Americans and minorities from achieving the American dream of home ownership.
As the nation’s housing market rebound from the initial shocks of COVID-19 shutdown in early 2020, former NAR President Charles Oppler publicly apologized for past racist policies and practices that the influential trade lobby and its state associations across the U.S. supported for more than a century. During a virtual summit, a week before Thanksgiving sponsored by The Hill, a top political website, Oppler said unequivocally that NAR’s past racist policies — that included steering, redlining, and creating covenants that prohibited nonwhite people from living in certain communities — were wrong.
“We can’t go back to fix the mistakes of the past, but we can look this problem squarely in the eye,” Oppler said. “Change starts with us. We must remember this history if we hope to repair America’s racially divided communities.”
In its recent efforts to increase the nation’s housing stock, NAR is advocating that all levels of government include funding for affordable housing construction; preserve, expand and create tax incentives to renovate distressed properties; convert unused commercial space to residential units; and encourage and incentivize zoning reform.
In addition, NAR has asserted that expanding new-home construction by an additional 550,000 units a year for 10 years would create 2.8 million new jobs and generate more than $400 billion in economic activity. NAR and the Rosen Consulting Group’s Housing is Critical Infrastructure: Social and Economic Benefits of Building More Housing report examines the causes of America’s housing shortage and provides a range of actions that can effectively address this longtime problem.
To view The Double Trouble of the Housing Market report, go here: https://www.nar.realtor/research-and-statistics/research-reports/the-double-trouble-of-the-housing-market.
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