More Black Americans dip into their retirement savings for down payments on houses than any other demographic.
That, and that they face a tougher challenge securing mortgages while getting home loans that are more expensive than some of their counterparts, was shown in the research by the National Association of Realtors (NAR) released Tuesday.
About 17 percent of Black homebuyers used their 401k and pensions to generate a downpayment for a home, a percentage point higher from the year before, and higher than any other group.
Read more: What Is a 401(k)?
"We see that they're needing to look at some of the other ways that they can put money towards their down payment that might not be from that equity that they might have had if they were a repeat home buyer," Brandi Snowden, NAR's director of member and consumer survey research, told Newsweek.
Some analysts suggest that for first-time home buyers, using retirement savings such as a 401k to fund the buying of a house was a good move.
"It's a good choice because the purpose of your retirement account is to fund your retirement. The long-term home ownership will also create its own retirement asset and the reason is because you're paying rent essentially to yourself," David Dworkin, president and CEO of the National Housing Conference, told Newsweek. "So, over time, while you're paying interest payments, the longer you hold the home, the bigger percentage of your monthly payment, goes to your own equity. And so it's a smart trade because you're also continuing to put money into your 401k."
The NAR study showed that Black homeownership increased by 1.6 percent over the last decade, even though the pace of growth was slower compared to other demographic groups.
This may partly be due to how deeply hurt Black homeowners were by the mortgage crisis of 2008.
"The fact is that when you look at the collapse in homeownership rates, in 2009 through 13, you see that you were really digging out of a much, much bigger hole," Dworkin said.
According to Dworkin, it wasn't until 2019 that Black homeownership rates began moving out of negative territory.
"What we're seeing now is an increase, which is great, but you have to go further back to see how devastating the loss was," he told Newsweek.
Student debt a barrier to black homeownership
NAR revealed that Black American buyers were saddled with more student debt compared to their other counterparts, which could be contributing to their hindrance in acquiring their own homes.
"Student loan debt amount for Black and African American home buyers was actually the largest amount since we began tracking this data in this report," Snowden said. "So we continue to see that is one of the big factors that might be holding back recent home buyers from saving for their down payment."
When Black Americans feel ready to buy, they are confronted with higher mortgage rates, and their applications for home loans get rejected more than their fellow Americans.
Twenty percent of black homebuyers in 2022 were granted mortgages above 6 percent compared with 18 percent for white Americans and 15 percent for Asian Americans. For Hispanic borrowers, 21 percent secured home loans of over 6 percent.
The data also showed 26 percent of Black Americans had their mortgage applications rejected whereas only 16 percent of white and 15 percent of Asian-Americans saw their loan requests turned down.
Black Americans face other obstacles, like higher debt-to-income ratios and lack of previous homeownership as a source of equity to finance their home buying, so they spend their income on rent, making it tougher to save for down payments, NAR research shows.
Read more: How to Save Money
"Potential buyers of color have a harder time saving for a down payment on a home, because they are paying more of their monthly income toward rent," Jessica Lautz, NAR's deputy chief economist, said in a statement. "Even among successful home buyers, minorities have a higher amount of student debt—the biggest expense that holds back saving, along with rent."
She added: "Once they are ready to buy, Hispanic and Black Americans have a higher rate of loan denials in the mortgage market."
Uncommon Knowledge
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Newsweek is committed to challenging conventional wisdom and finding connections in the search for common ground.
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Omar Mohammed is a Newsweek reporter based in the Greater Boston area. His focus is reporting on the Economy and ... Read more
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