Homeownership may be the key to the so-called “American Dream,” but it is harder for some to achieve than others.
According to a recent report from the National Association of Realtors, or NAR, more than 10 million people became homeowners in the decade between 2012 and 2022. The overall homeownership rate, or the percentage of people who own and live in their own home, increased from 63.9% to 65.2%. But breaking it down by ethnicity, there are clear discrepancies, especially between white and black families.
As of 2022, more than 72% of white families in the United States owned a home. Only 44% of Black families could say the same. While the latter group saw some improvement between 2012 and 2022, adding about 950,000 homeowners during that period, the Black homeownership rate has never been higher than 50%. It is also the lowest when compared to white, Asian and Hispanic families.
The persistence of the racial gap in homeownership is rooted in many factors, making it difficult to close. But some issues emerge more than others, and the Biden administration is actively addressing them with an eye to fairness and equity in housing, according to Marcia Fudge, secretary of the U.S. Department of Housing and Urban Development.
It’s an ambitious but worthwhile effort.
“[Progress is] it won’t happen overnight,” he tells Money in an interview conducted last month. “The problem has been around for so long and is so deep that it just takes time to fix it.”
Income and wealth disparities keep homeownership rates low
One of the main reasons for the gap is the disparity in income levels between different ethnic groups, which makes affordability a considerable challenge (especially with today’s high home prices and interest rates).
According to the U.S. Census Bureau, in the decade between 2012 and 2022, the median household income for all races increased from $63,350 to $74,580. Over that decade, each ethnic group increased its median household income, but not at the same rate: White families rose from about $71,000 to $81,000; Asian families went from about $85,000 to $109,000; and Hispanic households went from about $48,000 to nearly 63,000.
In contrast, the median income of black families rose from about $41,000 to $53,000, lower than that of any other group in terms of both starting and ending points. This gap means that many Black families struggle with housing affordability because they have less income with which to cover all their expenses.
According to NAR, 47% of low-income households owned a home in 2022, compared to 69% for middle-income households and 87% for high-income households. Another statistic indicates that 33% of Black families spend more than a third of their income on housing (whether rent or homeownership costs). This is the highest among all ethnic groups.
Racism still affects homeowners
Another barrier to black homeownership is institutional racism, according to HUD’s Fudge, who spoke to Money in February.
“It existed then, it exists now,” he says.
Practices such as redlining, in which financial services such as mortgages are denied to neighborhoods with high numbers of racial minorities; the undervaluing of black-owned property; and lack of construction in these areas are among the forms of discrimination faced by Black families. Fudge says the Biden administration continues to actively encourage interagency cooperation to work on these and other issues.
In a public letter last year, the real estate listing site Zillow supported HUD’s efforts to achieve a more equitable housing market, including its efforts to expand the Fair Housing Act, which protects against housing discrimination based on color, race, national origin, sex, religion, familial status, or disability.
These efforts include proposing new rules requiring any government agency that receives HUD funds to study and report on barriers to fair housing in their jurisdictions and to develop strategies to ensure compliance with the law.
Reached in late February, Will Lemke, Zillow’s spokesperson for housing policy, also highlights several additional changes made by HUD’s current leadership, including allowing on-time rent payments to be considered in the loan underwriting process and l ‘lowering mortgage insurance premiums, as steps that allowed HUD to better serve minority homebuyers.
“This type of support is important as we find ways to build, finance, and change laws to make housing more affordable,” Lemke tells Money.
How HUD is working to close the gap
To address the disparity between the number of black and white homeowners, HUD is focusing on reducing barriers faced by black communities. For example, Fudge says HUD – through Federal Housing Administration loans – has provided more than three times as many loans to Black families as conventional lenders in recent years.
Another way HUD is working to improve Black homeownership rates is by increasing educational resources and counseling programs that can help borrowers, especially those in disadvantaged communities, get their foot in the front door – literally. HUD boasts more than 4,000 housing counselors nationwide, accessible online or by phone, who can provide homebuying resources, such as down payment assistance and information on fair lending practices. (While these resources are available to all borrowers, they are aimed at communities experiencing difficulty gaining access to homeownership.)
HUD is also addressing appraisal bias, a form of discrimination that undervalues a home based on the owner’s race or the racial makeup of the area. According to the NAR report, 15% of Black homeowners said they experienced rating errors in 2022 — more than double the number of white families who did.
Home appraisals are important in determining the amount of equity (and, indirectly, the amount of wealth accumulated over time) a homeowner earns. Discriminatory practices against Black families and other disadvantaged communities can play a significant role in a homeowner’s ability to use equity to improve their financial position or overcome a financial setback.
To address the problem of rating bias, President Joe Biden established an interagency task force in 2021. The task force is co-chaired by Fudge and has representatives from 13 federal agencies, including HUD, the White House Domestic Policy Council and the Consumer Financial Protection Bureau. and the Department of Justice. Its purpose is to evaluate and determine the causes of appraisal biases and develop an action plan to remove them from the home appraisal process.
So far, that plan has included launching an independent review of the standards required to become a professional valuer and reviewing barriers that may prevent members of disadvantaged communities from becoming valuers.
In addition to the Biden administration, other organizations are working toward the same goals, including the National Fair Housing Alliance, a group of more than 200 private nonprofit organizations, as well as state and local civil rights groups. The alliance aims to eliminate bias in the algorithms used by real estate and financial companies, as well as enforce fair housing laws, among other initiatives.
Despite the difficulties presented by decades of discriminatory practices, Fudge says he is optimistic that a more equitable housing market can be achieved. As attention on problems increases, he adds, more people want to solve them.
“If I didn’t believe we could really make a difference, it wouldn’t be worth me doing this work,” Fudge says.
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