The Washington Post reports today about a brewing controversy over bank safety. The Fed wants to increase capital requirements for risky mortgage loans, with riskier loans requiring more capital. This sounds sensible, but banks, of course, are fighting it.
The only thing that makes this a live controversy is that the banks have an odd partner: organizations that advocate for more Black homeownership. Because of their lower income and smaller wealth (for down payments), Black homebuyers are generally riskier than white ones. Increasing capital requirements for their loans will probably lead to higher interest rates and push the Black homeownership rate even lower than it already is.
In one sense, this is yet another example of a truism: low incomes make everything harder. We would most likely be better off if we stopped piecemeal resistance to every regulation that might hurt the poor and simply gave them more money. This would accomplish the same thing but still allow sensible regulation and rulemaking.
In the case of Black homebuyers, the problem goes beyond income anyway. I did a very rough horseback calculation of how much homeownership you'd expect among Black families just based on their lower average incomes and then compared it to reality:
Take these numbers with a grain of salt. But only a grain: they're probably not too far off. What they show is that you'd expect the Black homeownership rate to be about ten points lower than white homeownership just by virtue of their lower incomes. But in reality, Black homeownership is about ten points lower still. This difference might be due to a lot of things, but plain old racism is almost certainly part of it.
So sure, we could give money to low-income families. That would help. But it wouldn't solve the whole problem.
When our kid wants to buy a house, we'll help them. But not everyone can.
https://www.youtube.com/watch?v=Mqrhn8khGLM&ab_channel=Netflix
This difference might be due to a lot of things, but plain old racism is almost certainly part of it.
Probably a much, much smaller part than wealth. To piggyback on what others are saying, looking at this phenomenon only with income in mind gives us a very incomplete picture. You have to look at wealth—specifically inheritances. Relatedly, affluent parents often guarantee mortgages for their children. This is surely less common in Black America.
Wealth is part of it, for sure. But keep in mind that when you control for income you're also controlling for wealth. Not perfectly, but to a significant degree. Poor white families don't have big inheritances either.
Agreed.
Housing is frequently a generational wealth transfer, the home being many families biggest asset. Sometimes with home ownership of 3, 4 or 5 generations. Frequently this wealth is used to help children or grandchildren buy homes, either directly or indirectly.
If your family was forbidden by law or practice from owning a home, this generational passing on of wealth can not happen. And would result in a lower rate of home ownership.
I believe blacks were more affected by the home mortgage crash. Are the statistics the same for prior to the crash?
Weirdly, banks use the excuse but they clearly don't want to issue FHA fixed loans, which oddly enough dob't have the same risk levels as the other low-down, low-information about income that other loans do...
But they don't have an the same upside....and if they get to foreclose on a property that went up in value, BINGO!!!
Giving people who are poor money has really great results. There's no reason to think that the outcomes would be fundamentally different in the US for this study.
https://www.npr.org/sections/goatsandsoda/2023/12/07/1217478771/its-one-of-the-biggest-experiments-in-fighting-global-poverty-now-the-results-ar
The main upshot is that giving large lump sums is more beneficial than giving the same amount in monthly payments. People tended to use this money to start a business (and they were more successful once started) whereas the sum split into monthly payments doesn't go as far.
Which, if you've ever been not-wealthy, makes a fuckload of sense. You can usually scrape by if you have to, but you'll never be able to save up for starting a business or (in this country) buying a not-POS car or a small home (or even just get out of a cycle of debt) if you're only getting a little bit more every month. But when you get a lump sum, it's lifechanging. It's part of why tax returns are so important for working people.
The study is encouraging, but the parallel to the the US may not be close. Starting a business in Kenya is probably a lot easier than in the US, requiring less capital. The experiment apparently gave everybody in the village some money, or at least many of them, thereby creating a bigger market for those who wanted to start businesses. There are places in the US where most people are poor and there is a lack of local businesses, but overall there are significant differences.
The difference is at least much due to assets as income. Black families inherit much less from their parents and are much less likely to receive financial help from their parents for a down payment.
But it is also true that Black people are more likely to purchase homes in neighborhoods that are poorer and have historically more volatile, risker values.
The net worth of the typical white family is $171,000, while it's $17,150 for the typical black family. So white families have 10x more wealth that black families. Kevin notes that the wealth difference will impact home ownership rates. I'll just comment that his bar charts are for income only, and additionally accounting for wealth may significantly alter them.
Also, since blacks have lower incomes and less wealth, they're more vulnerable in times of personal financial crises. As a result, the black bankruptcy rate is twice as high as the rate for whites. And on average blacks have lower credit scores. Having lower incomes and lower wealth gives an amplifier effect on keeping black families from being able to qualify for home loans.
"This difference might be due to a lot of things, but plain old racism is almost certainly part of it."
Surely some reputable social scientist somewhere has tried to do a model which includes all known factors to see if there appears to be residual racism involved in the loan system.
Surely you could google for it if you missed it in your news feeds. This one's recent.
https://www.brookings.edu/articles/how-racial-bias-in-appraisals-affects-the-devaluation-of-homes-in-majority-black-neighborhoods/
That link talked nothing about investigating the impact of income and wealth of black persons to find the net impact on home ownership rates.
Lot less homeowners in cities. Aren’t black people typically over represented in urban areas?
White rural poor homebuyers probably propping up the numbers
I'm sure wealth is a part of it, as is location. Cheap homes these days are in rural areas, and sometimes in inner cities (i.e. Detroit--are they still destroying homes). But blacks remaining in rural areas, like the Black Belt, are likely poorer than average.
Would be interest to see comparative figures for other groups--Hispanic/Latino, immigrants, etc. How about Indians--their income is above average, but how is their wealth--many haven't benefited from parents passing on weath.
That's what I was thinking. Black families are less likely to be buying/living in rural areas where the cost of housing is cheaper. In the more suburban areas, they are competing with young couples (of all colors) as first time home buyers and frequently priced out due to lower incomes.
Then you get decades of redlining thrown in that keep families from building wealth....
"This difference might be due to a lot of things, but plain old racism is almost certainly part of it."
Although plain old racism is often part of a problem, the media and the great majority of white people insist that racism is never part of any problem. Except the imaginary racism against white people, of course.
"...but plain old racism is almost certainly part of it."
Certainly, racism has deep roots in the US. However, in the last thirty years, incidences of lenders, realtors, home owners associations etc, acting in overt racist actions (refusing to show a house, charging a higher interest rate based on a person's race etc) are not common (based on succesful legal actions). Further, there are organizations, such as the NAACP, that will actively pursue legal action in these situations.
Often its hard to distinguish socio economic class from race. For example, there have been clear findings of poorer people being charged higher interest rates on loans: however, the variable is socio economic versus skin color.
Finally, I addressed overt racism versus more subtle racist obstacles (unfriendly realtor or neighbors, intentionally slowing down a loan process etc): while I imagine this happens, its hard to measure or track subtle racist actions or words and wonder if they could account for such a large racial difference as shown above.
Reclining by banks is one reason for the lower rates amongst blacks. I live in Amarillo TX where virtually 100 percent of the black population lives in the zip codes referred to by residents as "the ghetto." The banks have a policy against giving home loans to anyone from those zip codes.
"The banks have a policy against giving home loans to anyone from those zip codes."
Sorry, that can't be true. Redlining is illegal, and if a bank was found to be systematically doing that today, they would be in serious legal trouble. You really think loan officers and bank middle managers secretly reject Amarillo blacks for loans because of their race or zip codes? Strikes me as a conspiracy theory.
The simpler answer is: Black unemployment is higher than average.
Many things seem right from what was said above, racism of course but I think cross generational wealth is a big factor. Take compound 3% interest on $50 from 1860 to present day vs. the compound interest on $0 from the same time. My family benefited enormously from the land they acquired as immigrants.
Not said and speculative....Many rural blacks who are pretty well off live in multi-generational homes. I know of two families that are well-off that have grandparents, parents, and kids who all live in the same house. I have thought it would be interesting to understand this better as I think it might reflect security as much as need.. Maybe Kevin will make a graph.
I would love to see a few more independent variables: geographic region, type of community (rural, suburban, urban), wealth independent of income, marital status (I'm pretty sure single people are less likely to buy homes). Eventually one might conclude that one had isolated the effects of racism.
Incidentally, low-ball appraisals tend to help purchasers, since they force sellers to reduce prices to match their purchasers' ability to finance. So I'm skeptical about the impact of that factor.