Black homeownership statistics reveal that there are less than 41% black homeowners compared to 73% of white Americans.
There are many factors that contribute to this racial homeownership gap. From housing policies impacted by systematic racism to income disparities, there’s plenty of work to be done, and it’s not an easy fix.
Because the truth is that many problems contribute to low black homeownership rates. One is that older generations within the black community are suffering the impact of gentrification.
Put simply, they’re unable to afford the rising costs of homeownership within their own neighborhoods. Why? The homes that were once fixtures and symbols of the American dream have now become the grounds of urban development.
Inequalities do exist in the housing industry, yes. But improving the black homeownership rate is still important, necessary, and attainable. Let’s take a look at what we can do about it.
Why is black homeownership so important?
Becoming a black homeowner is more than just owning a home. It’s about laying a foundation for building generational wealth. It’s also the base for family & financial security. So, that’s why it’s absolutely worth striving for.
Black homeownership helps build generational wealth
Looking back now at how history is affecting the present, early Black Americans had tremendous difficulty in purchasing land and homes in the United States. And unfortunately, this has impacted how easy it is to leave a legacy to future generations.
Passing down a home is just one way that black families can begin to build generational wealth. Without property as a key asset, each generation must find other ways to acquire enough wealth to leave to their children.
Owning a home provides financial options
Your home is your main vehicle for building wealth and increasing your net worth. And net worth is a goal worth improving. But sadly, single black women have one of the lowest rates when it comes to net worth. How can this be changed? One way to close this racial wealth gap is by investing in real estate.
So, what’s the draw of being a first-time homebuyer? Well for one, you can build home equity to provide you with more financial options in the future. And you can use this equity in numerous ways. Perhaps to pay off debt, increase your savings, or invest? Current black homeowners can even buy a new home of greater value.
Another way to increase your net worth is to keep your home, so it appreciates in value. This means its value will increase over time. With this in mind, a home can be one of the greatest methods of wealth creation.
Homes provide safety and community
The benefits of homeownership go further. Not only does owning your own home provide a foundation for wealth building, but it’s important for families too. A home is a safe space where families can grow and is the cornerstone of communities. A neighborhood filled with homeowners rather than tenants will have pride in their property and the local area.
Why black homeownership statistics are disproportionately low
But black homeownership statistics are still incredibly low. Why? Let’s take a closer look at the factors that contribute to the disproportionately lower rate of black homeownership.
Government housing policies impact opportunities for black homebuyers
Housing discrimination is a practice that impedes the ability to rent or buy housing. It also prevents people from getting a mortgage or other housing-related activities. This discrimination is based on race, religion, sex, and other identifying factors. Government-approved policies, like the National Housing Act of 1934, made way for unfair practices such as redlining.
Redlining was a form of mortgage discrimination or bias. It allowed lenders to deny mortgage loans to people living in areas that were densely populated by African Americans.
The Fair Housing Act was passed in 1968 to make such practices illegal. And there have been efforts to undo these years of discrimination in the housing market. However, the effects of these practices still exist. Even today, they still impact black homeownership rates.
Mortgage discrimination
Another form of homebuyer discrimination is the disparities in interest rates. A recent study shows that minorities are charged a higher rate of interest for their mortgage.
Additionally, African Americans are more likely to be denied a loan. A study by Lending Tree shows that black households have a denial rate of 17.4% versus 7.9% for white households.
One of the reasons for this is a lack of information for first-time homebuyers. Black mortgage applicants aren’t aware of various incentive programs that exist from the Federal Housing Administration (FHA) and other avenues. And this continues to put black families at a disadvantage when it comes to acquiring lending.
Black American households also have higher debt than other ethnic groups. Specifically with student loan debt. Black students take out the most student loan debt, followed by white, Hispanic and Asian students. This has quite an impact following graduation.
Four years later, black students have twice as much student debt as their white peers. Worse still, 20% of black students fall behind on student loans, compared to just 6% of white students. This is mainly due to the differences in interest accrual and the lump sum borrowed in the first place.
Debt directly affects the ability to purchase a home. Why? Too much debt could mean lenders decline your mortgage application due to the risk of default. This makes it hard to gain the funding required to buy a home.
Additionally, wage gaps for minorities and for women also negatively impact your ability to pay off debt. Again, this makes it more difficult for black borrowers to get a mortgage.
Lack of access to capital for a downpayment
When you buy a home, you need to put down capital as a downpayment for the property. Usually, this means saving hard to create this downpayment pot for your future home. But the ability to save enough depends on how much you earn.
And this is another area where Black Americans are at a disadvantage. The annual median wage of all US workers is $42,000, but 43% of black workers earn less than $30,000 per year, according to McKinsey research.
Many families live paycheck to paycheck, unable to even save for emergencies. One study found that 69% of Americans have less than $1,000 in savings. The result of this wealth gap? Some people cannot earn enough to save for the downpayment of a home.
Steps to improve black homeownership statistics
Ongoing work continues to level the difference between black and white homeownership rates. But in the meantime, there are ways to make housing affordability more likely. Let’s take a look.
Focus on getting financial education
First, focus on financial education, including learning how to budget your income. This means creating a plan to save, reduce any debt, and invest for the future.
Need some support? How about starting with our Clever Girl Finance Roadmap? You can also take advantage of our completely free personal finance courses.
Work to reduce debt
As we’ve discussed, debt impacts your ability to purchase and maintain a home. So before buying a home, work to reduce your debt. Ideally, you’ll have zero, but if not, try to pay down as much as possible.
Lenders evaluate your debt-to-income ratio. They want to know how much you earn each month, and how much of that goes towards paying down your debt. This helps them determine your ability to make your monthly payments.
So, if you have too much debt compared to your income, this could reduce your likelihood of getting approved for a loan. Or it could mean you’re not able to borrow as much as you need for the home you have your eye on.
If this is a problem for you, consider these debt reduction strategies for attacking your debt.
Begin to prioritize savings (not just for a down payment)
Take steps to secure your financial future before buying a home. Having money saved for emergencies and retirement is necessary for financial stability. So, prioritize this before thinking about saving for a down payment.
But saving on a tight budget can be difficult, so there’s no harm in starting small. Every little contribution you make is a step in the right direction, and this eventually adds up. Once you’ve saved for emergencies and put money toward your retirement, start saving for a downpayment.
Improve your credit
Unless you’re a cash buyer, you’ll need to take out a home loan to buy a property. And credit plays a significant role in being able to get a home loan.
If your credit score is low, improving it will increase your chances of getting approved for a loan. And better yet, you’ll be eligible for loans with better interest rates.
So, what does your credit score include? Lenders will look at several factors, such as your credit utilization, payment history, and credit history length. They’ll also consider your debt mix and the number of hard inquiries to your credit report.
Before applying for a home loan, or any other type of loan, it’s essential to know how credit works. And how these factors impact your credit score. From here, you can regularly monitor your credit and take the necessary steps to improve your score.
Black homeownership is within reach
The statistics on black homeownership may not seem promising. But the truth is that homeownership is still attainable for black families. And it’s an excellent goal to have. Owning a home provides a legacy to future generations and helps build the foundation for generational wealth.
So, if your ultimate goal is to purchase your own home, don’t let black homeownership statistics scare you. We can and will close the black homeownership gap with the right education and tools.
What’s next? If you’re ready to purchase your first home, check out our free first-time home buyers course and you’ll be starting on the right path!
