By: Janna Herron

What was once the picture of the American dream may now be out of reach for many Americans. Here’s why.

Darlene Easley doubted she could ever buy another home.

In 2014, the 53-year-old African-American social worker lost her previous house to foreclosure after she went bankrupt over $245,000 in medical bills from her breast cancer treatment.

“I tried to hold onto the home, the car, but the bills kept piling up,” says Easley, who also was raising her teenage daughter on her own at the time. “I was paying what I could but everything spiraled out of control.”

Fast forward to August 2017 when Easley closed on a three-bedroom ranch home in Canal Winchester, Ohio. It wasn’t without work. She got on a budget, paid down debt, improved her credit score and compromised on location.

“The same house would have been probably $30,000 higher on the other side of town,” she said. “I had to go where … my finances were.”

Easley’s challenges echo what many minorities face as they chase the American Dream of owning a home. The past year was no exception, according to a survey of homebuyers from the National Association of Realtors.

All homebuyers faced a tough housing market as prices and interest rates rose and affordability declined. But larger shares of black and Hispanic buyers had to surmount other obstacles – such as lower incomes, more student debt and mortgage approval troubles – beyond what their white counterparts faced, according to the NAR data.

The result? Homeownership rates of black and Hispanic buyers remain far below that of non-Hispanic whites, with black homeownership suffering the most since the Great Recession. Over time, this hurts these groups’ ability to build wealth that can be tapped later in life or passed down to the next generation.

“Where you live determines where your children can go to school,” said Lebaron Sims, senior research manager at Prosperity Now, a Washington, D.C.-based nonprofit that advocates for low-income communities. “Home equity can be leveraged as an asset to start a business, pay for private school or college. Without that asset to draw on leaves these households at a major disadvantage.”

The homeownership rate for whites is 73.1 percent, or 2.4 percent below its 74.9-percent rate when the Great Recession began in December 2007, according to Census data. The Hispanic rate is 46.3 percent, or 4.5 percent lower than the 48.5-percent rate in 2007. The black homeownership rate is 41.7 percent, or 12.8 percent off its 47.7-percent rate at the start of the recession.

What are the obstacles?

The disparity in the homeownership rates has been a longstanding problem, advocates say. “What we see today is the result of historical policies over the past several decades,” from redlining to the foreclosure crisis that disproportionately hit minorities due to predatory lending, said Jhumpa Bhattacharya, vice president of programs and strategy at Insight Center for Community Economic Development, a national research and economic justice organization in Oakland, California.

The NAR’s data pinpoints which factors proved most challenging for buyers this year.

• Income: The median income of black homebuyers was $82,140, or 10.5 percent lower than the median for white buyers at $91,820. The difference can make it harder to save for a down payment. For instance, Easley’s annual salary was $51,000 and she relied on a down payment gift from her twin sister.

Hispanic buyers fared a bit better with incomes 4.5 percent lower than white buyers, according to the NAR. To compensate, black and Hispanic buyers purchased lower-priced homes.

Part of the income discrepancy is because black and Hispanic buyers are more likely to be first-timer buyers, a group with statistically lower incomes, versus white homebuyers. But that alone misses a larger context. Minority buyers, especially blacks, were also hit harder by the Great Recession, hurting their earning power going forward.

“The crisis did prove that black families are more vulnerable when it comes to downturns,” said Alanna McCargo, vice president of housing finance policy at the Urban Institute, a Washington, D.C.-based think tank that conducts economic and social policy research.

The unemployment rate for blacks soared to 16.8 percent following financial crisis, while the highest level for whites was 9.2 percent. The unemployment rate for Hispanics hit a high of 13 percent during the recession.

• Student debt: Paying college loans is a big burden for homebuyers. It’s harder to save for a down payment and can make qualifying for a mortgage more difficult. It can also delay a purchase as people pay down their debt. And it’s an obstacle that’s more common among black buyers.

Forty-three percent of black homebuyers had student debt, compared with only 25 percent for Hispanics and 23 percent for whites, according to the NAR. The median amount was $39,000, or 50 percent more than the median amount among whites, and 95 percent higher than the total debt for Hispanics.

Mortgage woes: Black and Hispanic buyers were also more likely to be rejected by a mortgage lender than white borrowers. Part of this reflects the disparity in credit scores among these groups. Larger portions of blacks and Latinos have low credit scores or no credit history at all versus whites.

“Some of the payment history that African-Americans have is not even considered by credit scores – like rent payment, cellphone and even payments to high-interest lenders,” said Jeffrey Hicks, president of the National Association of Real Estate Brokers, an industry trade organization.

Easley got a secured credit card for small expenses and made regular on-time payments to boost her credit score by about 40 points, said Dairrick Alexander, her Coldwell Banker real estate agent.

Another issue is the decline in home loans backed by the Federal Housing Administration, used extensively by black and Hispanic communities. These government-backed loans require smaller down payments and have more lenient credit standards. But since 2010, the number of FHA loans originated by lenders, especially big banks, has fallen, disproportionately hurting these homebuyers.

If you don’t automatically think of a booming housing market when you think of Boise, Idaho, think again.

Potential Solutions

To increase homeownership rates among minorities requires a multiprong strategy using short- and long-term solutions.

One possibility is offering ongoing financial counseling for new homeowners so they can weather tough economic times.

• Bigger picture for credit: Lenders can also adopt alternative methods of evaluating creditworthiness besides just credit scores, to expand access to mortgages. But there must be consumer protections in place to keep lenders from targeting groups with high-cost, risky loans like in the run-up to the last housing crash.
• Grant programs: There can also be better education about down payment assistance or grant programs that states, municipalities and nonprofits offer first-time homebuyers. “Money is left on the table every year because no one knows about these,” said McCargo of the Urban Institute.

But historical issues such as discrimination and economic inequality can’t be solved with simple fixes. Advocates say more capital must be invested in minority communities to counter the lingering effects of redlining and help create better paying jobs, schools and neighborhoods. NYC Escorts

Progress has started in Hispanic communities. The homeownership rate for Hispanics has recovered the most since its post-recession low among all groups.

“We’ve seen across the board general improvements in Hispanic and Latino households: higher earnings, better financial stability, lower rates of underbanked and unbanked households, higher job quality metrics overall,” Sims said. “It has been the biggest surprise.”

AUTHOR: Janna Herron is Personal Finance/Real Estate Reporter for USA Today. 

SOURCE: USA TODAY