3. Why the racial homeownership gap persists

The homeownership gap between Black and white Americans is worse today than when race-based housing laws and policies were in effect decades ago.

Why it matters: Decades of unequal access to mortgage financing have had a predictable effect: Non-white Americans have much lower homeownership rates, lower wealth and a higher degree of financial precarity. This is especially true among Black Americans.

The homeownership gap between Black and white Americans is worse today than when race-based housing laws and policies were in effect decades ago.

Why it matters: Decades of unequal access to mortgage financing have had a predictable effect: Non-white Americans have much lower homeownership rates, lower wealth and a higher degree of financial precarity. This is especially true among Black Americans.

Non-white Americans face a harder time finding and financing a home. They also pay higher rates once they get a loan. And they are more likely to be targets of predatory lending.

About 4-in-10 (42%) Black Americans own a home; for Hispanics it's 61%; and for whites it's 72%, per the Census Bureau.

• The government's New Deal-era "redlining" program officially labeled predominantly Black neighborhoods as a "hazardous" investment for the Home Owners Loan Corp., creating lower home prices that persist to today.
• Today, Black families are denied mortgages at a much higher rate than other Americans. According to Zillow, some 24% of mortgage applications by Black Americans are denied, compared to nearly 20% for Hispanics and 14% for Asians and for whites.
• Black-owned banks have tried to fill the gap, supporting borrowers in predominately Black communities. But their numbers have shrunk by 50% since 2001, according to the Urban Institute.

The big picture: When loan officers at local banks extended mortgages, they often withheld loans from people of color. In recent years, those decisions are increasingly made by faceless algorithms, based on credit scores. But that's not necessarily an improvement, since Americans of color have lower credit scores, on average.

• Households of color are more likely to be renters — and timely rent payments, unlike timely mortgage payments, are not reflected in credit scores. So renters' credit scores remain low, and the bottom rung of the housing ladder remains out of reach.
• "Credit scoring, the way in which it's done, has a disparate impact on African American and Hispanic families," says Richard Rothstein, distinguished fellow of the Economic Policy Institute.

Even if one gets past all those barriers, homeowners who are not white tend to have less equity in their homes. On average, Black homeowners have $67,000 of equity in their homes, Hispanic homeowners have $95,000 and white homeowners $130,000, according to 2019 Federal Reserve data.

The housing boom and bust of the 2000s saw Black and Latino borrowers deliberately put into higher cost, higher-risk loans than similarly situated white borrowers — and then saw the same borrowers suffer significantly higher foreclosure rates than their white counterparts.

• Homeowners who avoided foreclosure in the wake of the 2008 financial crisis are generally now sitting on significant positive equity. Those who were foreclosed on, however — disproportionately Americans of color — were booted off the homeownership ladder entirely.
• Similarly, during the 2020 crisis, white borrowers are more likely to have received forbearance from their mortgage lender than their Black and Latino counterparts.
• Predatory lenders destroy wealth rather than creating it. Such lenders "disproportionately target minority, especially African American, borrowers and communities," as one Harvard study found.

The bottom line: Racism can still be found at every stage of the homeownership financing process. As America approaches a new eviction crisis, the racial housing gap looks as though it's going to get even worse.