The gap in Black-white homeownership rates recently reached 30.1% in the U,S, its highest level in 50 years and larger than when race-based discrimination against homebuyers was legal. Jung Hyun Choi of The Urban Institute has identified three factors that explain most of this gap*. They are:
Income differences account for 31 percent of the gap. The median income for Black households is $38,183 and $61,363 for white households. Close to a third of Black households earn less than $25,000, compared to 18% of white households. The Black-white ownership gap is greater at lower income levels.
Differences in marital status account for 27% of the gap. Single householders are less likely to own homes and more likely to exit homeownership than married householders.
Credit score differences account for 22% of the gap. More than half of white households have a FICO credit score above 700, compared to 21% of Black households. In addition, a third of Black households have no credit score due to insufficient use of credit, compared to 18% of white households.
The above factors account for 80% of the Black-white homeownership gap. Housing supply, housing affordability and racial segregation account for another 3%. About 17% of the gap remains unexplained. To clarify: that’s 17% of the 30.1% gap, which translates to 5.1% of the difference in Black-white home ownership (.17 X 30.1% = 5.1%). Much is this remaining difference is likely to be explained by parental wealth, student debt, information access, and the vestiges of policies (e.g., mass incarceration) that have made it more difficult for some Blacks to obtain homes. Another factor may be that homes in Black-dominant neighborhoods tend to appreciate more slowly than those in white neighborhoods, or even lose value over time, making homeownership a losing proposition in those neighborhoods. After all, part of the motivation to own homes is to create wealth and if one can’t build equity through homeownership, well, what’s the point?
Ok, so the causes of the Black-white homeownership gap aren’t all that mysterious. The question is how to narrow the gap. And that will be the topic of my next post.
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* Specifically, Choi addresses the Black-white homeownership gap in Metropolitan Statistical Areas (MSAs), where most Americans live. Per Wikipedia, an MSA is a geographical region with a relatively high population density at its core and close economic ties throughout the area, including nearby counties. There are almost 400 MSAs in the U.S.
References:
Breaking Down the Black-White Homeownership Gap by Jung Hyun Choi. Urban Wire/Housing and Housing Finance: The blog of the Urban Institute. February 21, 2020. https://www.urban.org/urban-wire/breaking-down-black-white-homeownership-gap
Why Black Businesses and Homeownership Won’t Close the Wealth Gap by Brentin Mock/Bloomberg. February 25, 2020 https://www.bloomberg.com/news/articles/2020-02-25/how-to-actually-close-the-racial-wealth-gap
Why Do Black College Graduates Have a Lower Homeownership Rate Than White People Who Dropped Out of High School? by Jung Hyun Choi and Laurie Goodman. Urban Wire/Housing and Housing Finance: The blog of the Urban Institute. February 27, 2020. https://www.urban.org/urban-wire/why-do-black-college-graduates-have-lower-homeownership-rate-white-people-who-dropped-out-high-school
Why Black Businesses and Homeownership Won’t Close the Wealth Gap by Brentin Mock/Bloomberg. February 25, 2020 https://www.bloomberg.com/news/articles/2020-02-25/how-to-actually-close-the-racial-wealth-gap