According to a survey by the Federal Reserve, U.S. homeowners have 40 times the wealth of non-homeowners. Despite best intentions and recent efforts, the homeownership gap for Black and Latino communities remains stubbornly wide. In January, the U.S. Census Bureau released the homeownership rates for 2022, which showed that white people have a 74.4% homeownership rate, Black people are at 45.9%, and Hispanics come in at 48.6%.
Homeownership percentages and generational wealth only increase when a large number of first-time buyers can enter the market and remain homeowners through economic cycles. This is not an easy problem to solve. Here’s how we can make meaningful progress:
Improve housing affordability by increasing the housing stock: In order to improve housing affordability, a substantial increase in housing stock is necessary. The limited supply of affordable housing is, in part, driven by the fixed costs — land, zoning, permits — related to development, which remain excessively high. Local zoning policies also vastly limit the number and type of housing that can be built in many neighborhoods. A coordinated effort between federal and local policymakers is necessary to address the substantial regulatory barriers that are preventing the development of sufficient increases in the housing stock required to meet the foreseeable growing demand. We must also support minority developers and those wishing to create more affordable housing by increasing their access to dedicated capital.
Improve access to low-cost mortgage capital: Without generational wealth, most first-time homebuyers will need a low down payment mortgage to purchase their home. Unfortunately, surcharges known as risk-based pricing are typically imposed on borrowers with lower credit scores, high loan-to-value ratios and high debt-to-income ratios — basically, the people who can least afford them. Additionally, Latinos and immigrants are almost twice as likely to own a small business, which is great, except when trying to qualify for a mortgage, where self-employed borrowers are more likely to be turned down. The Federal Housing Finance Agency (FHFA) recently announced the elimination of upfront fees for certain borrowers and affordable mortgage products, a step in the right direction. More needs to be done.
Close knowledge gaps: Purchasing a home is one of the largest and most complicated financial transactions most people will ever experience. Many Black and Latino first-time buyers are the first in their families to own a home. Language barriers and a lack of information about the homebuying process can make the experience intimidating. Access to housing counseling is not a “nice-to-have,” it is a “must-have” for most first-time homebuyers.
Align industry diversity: Having a real estate professional that can guide a Black or Latino first-time buyer through the process who comes from the community and speaks the buyer’s language of choice can make an enormous difference. We also know that companies with greater diversity perform better, and diverse management teams report 19% higher revenues than companies with below-average leadership diversity, according to a 2017 survey by Boston Consulting Group. One way to increase diversity in the real estate and mortgage industries is to help Black- and Latino-led companies grow their businesses. Large real estate brands can recruit and invest in minority-led companies, and the FHA can streamline applications and create incentives for Black- and Latino-led mortgage companies.
According to the State of Hispanic Homeownership Report, Latinos have the largest share of the near mortgage-ready population of any racial or ethnic group. Closing the minority wealth gap is not only good for those communities, but it is also imperative if the U.S. is going to maintain its leadership in the global economy.
Material progress will require a larger effort on the part of the government, nonprofits and the private sector. With considerable demographic changes happening everywhere, the economic well-being of our minority communities is directly connected to the overall prosperity of America.
Gary Acosta is co-founder and CEO of the National Association of Hispanic Real Estate Professionals. Carolina Jannicelli is head of community impact at JPMorgan Chase & Co.
