The real estate industry has been trying to expand homeownership to people of color for decades. But buying a home hasn’t always been easy — especially for Black Americans. More than 50 years after the Fair Housing Act, the homeownership gap between white and Black households is larger than ever.
Still, there are signs of progress. And one of the biggest is the fact that rising home values are helping Black homeowners generate wealth and gain greater financial freedom.
Last month, Redfin reported that people who bought homes in primarily Black neighborhoods in 2019 saw a 197 percent increase in their home equity. As a group, these Black borrowers saw larger gains in equity, percentage wise, than any other race. Hispanic homeowners weren’t far behind, with a 191 percent growth in equity.
It’s true that homeowners of every race are getting wealthier thanks to soaring home values, which rose 14 percent nationwide over the past year. It’s also true, according to Redfin’s report, that Black homeowners who bought in 2019 started off with far less equity than white homeowners, which helps explains why they saw such a significant jump.
But the median $89,000 in equity that Black homeowners have gained is worth celebrating — the number is up 197 percent compared to 2019 — especially for a group that historically has had less access to generational wealth than other homebuyers.
Home equity makes up the largest proportion of the average family’s net worth, according to the U.S. Census Bureau. But what’s most exciting are all the different ways homeowners can reinvest their equity to advance their wealth creation.
From starting a business, sending a child to college, paying down debt, making home improvements or providing a down payment to a child, this equity can truly begin to create intergenerational wealth for future generations.
In 1936, my great grandmother, who worked as a house servant for white families and was widowed with four young boys, bought her first home in Hillsborough, North Carolina, for $500. This one act transformed not just her life but three generations of our family, and we are still enjoying the benefits of homeownership today.
However, while many Black families are building wealth through homeownership, the majority are not.
In the fourth quarter of 2020, only 44.1 percent of Black households and 49.1 percent of Hispanic families owned a home, compared to 74.5 percent for white families, according to Census Bureau data. And while home values are rising, they are also making purchasing a house less affordable.
The homeownership gap also plays a large part in the disparity between minorities and whites when it comes to household wealth. Recent data from the Federal Reserve’s 2019 Survey of Consumer Finances (SCF) found the typical white family has eight times the wealth of the typical Black family and five times the wealth of the typical Hispanic family. Those disparities have been about the same since 2016.
How the industry can help
A number of factors are fueling this gap, according to the Fed, including the facts that most Blacks make less money than whites and are less likely to have cash reserves or receive inheritance from their parents. Closing this financial gap will take great effort at many different levels. But there are ways the real estate industry can help.
One way is by educating potential homebuyers about down payment assistance programs, which have been demonstrated to play a life-changing role for people of color.
There are hundreds of down payment assistance programs available nationwide that enable credit-worthy borrowers to clear what has traditionally been the biggest hurdle to homeownership. New HUD Secretary Marcia Fudge has also been a strong advocate of federal down payment assistance programs and supports expanding them.
Real estate professionals can do their part by making sure they diversify their marketing efforts and don’t limit their attention to only upscale neighborhoods and the largest transactions. The growth in home equity in traditionally Black neighborhoods shows that there is value in marketing to these areas as well.
In addition, homeowners in lower cost neighborhoods may be thinking it’s time to sell and buy another property, or to use their home equity to gift a down payment to a child so they can buy a home and start building their own wealth.
By ensuring they are reaching out to communities of color and sharing positive news like the growth in home equity in Black neighborhoods, real estate professionals can demonstrate to potential buyers how transformative homeownership can be.
They can also provide education to existing homeowners on how they can use their home equity to increase the value of their current property, start a new business or even invest in another property.
The bottom line is that home equity gains for minority homeowners is a significant step in reducing the wealth gap. We all have an opportunity to build on this achievement so more Americans can realize their dreams of homeownership and create a foundation of financial strength for future generations.
And there is no better time than now.