Jun 30, 2020 - Economy & Business

The myth of closing the racial wealth gap through homeownership

Reproduced from Urban Institute; Chart: Axios Visuals
Reproduced from Urban Institute; Chart: Axios Visuals

A new study from Redfin finds that 44% of Black families owned their own home as of the first quarter of this year compared to 73.7% of white families.

Between the lines: Many have suggested that a key to closing the racial wealth gap between Black and white Americans is to encourage more Black families to own homes, but data shows that would be woefully insufficient.

  • This disparity that rises as high as 50 percentage points at its peak in Minneapolis where 75% of white families own their homes compared to 25% of Black families.
  • "[S]imply advocating the purchase of a new home will not overcome the existing gap produced by national policies," a study from the Samuel DuBois Cook Center on Social Equity finds.

Details: "Rather than homeownership creating wealth, having family wealth in the first place leads to homeownership, particularly high equity homeownership," the study notes.

  • This is borne out in the fact that Black homeowners in the U.S. on average start with much less wealth, purchase lower-priced houses and grow less value in their homes, no matter their age or income level, compared to white homeowners.

How we got here: Much of this can be traced back to U.S. homeownership history — white families were able to benefit from federal housing programs and secure mortgages for generations while Black families were often denied bank loans outright or had to accept predatory loans at extreme interest rates.

  • This allowed white families to pass down houses that had accumulated increased value to their children producing immediate wealth.
  • "[W]ithout sufficient wealth in the first place, households have limited means to invest in homeownership," the DuBois study says. "Wealth, after all, begets more wealth."

By the numbers: Data from the University of Michigan show 87% of white homeowners bought their first homes before age 35, compared with 53% of black homeowners.

  • The Urban Institute notes "the inflation-adjusted average housing wealth at age 60 or 61 for white households was $124,000, compared with $54,000 for Black households."
  • "The average first home purchased by Black homebuyers is valued at $127,000, compared with $139,000 for white homebuyers, yet Black homebuyers, on average, have higher mortgage debt ($90,000) than white homebuyers ($75,000)."
  • "Surprisingly and notably, the difference in mortgage debt ($15,000) is larger than the difference in the home value ($12,000)."

The last word: A 2019 study by the Urban Institute found that while differences in income, credit score, marital status, and education after controlling for the level of racial segregation, housing supply, and housing affordability explained most of the homeownership gap, 17% of the difference "remains unexplained" by any of those factors.

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