Black homebuyers face disproportionate barriers along the road to homeownership from finding an affordable home and attaining a mortgage, to sustaining homeownership. The current 30 percentage point gap between the White and Black homeownership rates is greater than it was in 1960 when discrimination was legal in home selling and financing.
A new report by the Urban Institute Housing Finance Policy Center examines the latest data to guide ongoing efforts to advance Black homeownership, such as the Black Homeownership Collaborative which set a goal of 3 million more Black homeowners by 2030. There is early encouraging news, but significant challenges lie ahead. Despite the economic challenges of 2019-2021 period, the Black homeownership rate rose by 2%, growing more than the White homeownership rate (+1.2%), marginally reducing the gap. Without long-term determined intervention, Black homeownership is expected to trend downward.
We found evidence that emergency policies targeted those most adversely affected by the pandemic and economic downturn, who were disproportionately likely to be people of color. Many Black millennial households took advantage of the historically low interest rates to transition from renting to owning. Meanwhile, foreclosure moratoriums and forbearance sustained current homeowners during economic stress; Black households were more likely to take advantage of forbearance than White homeowners in 2020 and 2021.
New Black Homeowners by the Numbers : The National Mortgage Database (NMDB) created by the Federal Housing Finance Agency is a nationally representative 5 percent sample of residential mortgages in the United States. Aggregate data from the NMDB are published annually, presenting data by month, quarter, and year. The share of all home purchase loans for which one of the borrowers is a first-time homebuyer has been published since 2004. As of December 2021, the first-time homebuyer share was 49 percent. The NMDB collects information on borrowers’ race and ethnicity, but it does not publish aggregated statistics of first-time homebuyer shares by race and ethnicity.
For the 2021 full-year data, the NMDB first-time homebuyer share was 51.1 percent. The NMDB estimated that at least 4.9 million loans were originated in 2021, 6.8 percent of which (or 325,548) were originated to Black borrowers, slightly below the HMDA count. If we apply the 51.1 percent first-time homebuyer share, we can conclude that roughly 166,373 home purchase loans were originated to Black borrowers in 2021. We can conduct the same calculation for 2020; the NMDB reported a 52.2 percent first-time homebuyer share, which means there were roughly 158,810 first-time Black homebuyers in 2020. This totals 325,183 new first-time Black homebuyers in 2020 and 2021.
Mortgage Ready Renters: To qualify for a mortgage, applicants must meet certain income and credit requirements. Freddie Mac tracks the number of “mortgage ready” renters by race and income, nationally and by metropolitan statistical area. According to Freddie Mac, as of January 2021, 5.4 million Black people ages 45 and younger are potentially mortgage ready (3.4 million) or near mortgage ready (2 million) (Dey et al. 2021).
First-time Black millennial homebuyers were estimated to be the major generational contributor to the increase in Black homeownership rates in 2020 and 2021, but the National Association of Real Estate Brokers’ (NAREB) latest State of Housing in Black America (SHIBA) report warns that Black millennial homeownership still lags behind previous generations and behind millennials of other racial and ethnic groups (Carr and Zonta, 2022). As they near age 40, Black millennials have a homeownership rate that is about 10 percentage points lower than that of Black Gen Xers and baby boomers at the same age, and the rate is trending sharply downward. This trend, if it continues, could result in at least 900,000 fewer Black homeowners by 2040 than if younger Black renters achieved homeownership at the same rate as Black baby boomers.
Reasons for Denial: Black renters, on average, are more likely to have low or no credit scores and to have higher debt-to-income ratios. The main reasons Black loan applicants were denied in 2020 and 2021 were credit history and debt-to-income ratio, in that order. Pandemic conditions eased both of these. Federal policies that held interest rates low meant that more households were able to afford the monthly payments needed to buy a home, easing the debt-to-income constraint. And Consumer Financial Protection Bureau researchers found that renters’ credit scores improved during the pandemic, even more so than homeowners’ scores (Dobre, Rush, and Wilson 2021).
Growing attention to racial disparities in homeownership contributed to these recent gains. But looking ahead the data reveal strong headwinds to maintaining this momentum. The current Black millennial homeownership rate continues to lag those of previous generations and of millennials of other racial and ethnic groups. Underwriting guidelines remain tight, and Black mortgage applicants are still more likely to be denied a mortgage than white applicants. Other big challenges include a lack of affordable homes to buy, macroeconomic uncertainty and climate risks.
Looking Forward: There is much to celebrate in the progress made over the past two years, especially considering the economic challenges the pandemic brought to all households, and to Black and Latino households in particular, who were more likely to be employed in sectors hit hardest by the shutdowns and who experienced high rates of COVID-19 exposure. Additionally, the highly competitive seller’s market advantaged repeat buyers, cash buyers, and buyers with greater means to take advantage of the situation. That there are 260,000 more Black homeowners today than there were two years ago is a remarkable achievement.
And yet, getting 2.7 million more families to own homes, which would put the Black homeownership rate over 50 percent for the first time (given expected population and household formation rates), will require more than good timing, marginal gains, and programs that are small or poorly targeted.
Now is the time to capitalize on the momentum and push forward on all these fronts. In the current economic environment, some question whether this is the right time to encourage homeownership. However, the gains made during the pandemic show that targeted policy choices can make homeownership a safe wealth building mechanism. Data can help point the way to real solutions and track progress. We call for making more data publicly available by race and ethnicity which will help researchers, advocates, and policymakers hold one another accountable.