Black mortgage applicants twice as likely to be denied
Chatham, Chicago Photo: Reallyboring
New research from Zillow reveals that minority groups struggle to access credit, while house prices in minority communities were disproportionately affected by the housing crash.
In 2013, 27.6 per cent of blacks and 21.9 per cent of Hispanics who applied for a conventional mortgage were denied, more than double the 10.4 per cent of white applicants who were turned down.
Nationwide, home values in predominantly Hispanic neighborhoods fell an average of 46.3 per cent from the pre-recession peak to the bottom of the market. Over the same period of time, home values fell by 32.1 per cent in largely black communities, by 23.6 per cent in largely white areas, and by 19.2 per cent in mostly Asian areas.
As a result, home values in both black and Hispanic communities also have farther to climb before getting back to peak levels, while home values in white and Asian neighborhoods have already returned or nearly returned to their peak levels.
"While many of the disparities between the experiences of white communities and minority communities during the housing boom and bust can be explained by plain differences in finances and geography, it's clear that the housing playing field remains strikingly unequal in this country," comments Zillow Chief Economist Stan Humphries.
"Black and Hispanic applicants for conventional home loans make roughly $20,000 less per year than white applicants, resulting in much higher denial rates. Similarly, black and Hispanic communities are clustered in areas that saw huge run-ups in home values prior to the recession, and even larger drops during the crash. But there are some reasons for optimism. Home values in black and Hispanic communities are expected to rise faster over the coming year, and the data shows that Federal Housing Administration-backed loans have proven to be a viable and critical source of financing in minority communities."
The discrepancy is most intense in some of the nation's most volatile markets. Home values in both black and Hispanic communities in the Los Angeles area remain more than 20 percent below their pre-recession peaks, while homes in L.A.'s Asian communities have appreciated beyond those peaks and homes in white neighborhoods are almost at peak levels.
Some of the patterns revealed in the data can be explained by geography. For example, many Asian neighborhoods are on the West Coast, in some of the country's hottest housing markets, which can help explain why home values in Asian communities have risen faster and further than in other neighborhoods. Similarly, many Hispanic-dominated communities are located in volatile housing markets in the Southwest and Southern California, which can explain their rapid appreciation during the boom and steep fall during the bust.
The disparity in loan approvals is likely tied to a number of factors, including income. Applicants who belong to racial minority groups fare better when they apply for government-backed FHA loans than conventional loans.
Overall, though, the figures paint a striking picture of the modern housing market, in which the racial divide has remained unchanged since 1990. According to Zillow, the homeownership rate among whites is 71.1 per cent, compared to 41.9 per cent among blacks. The gap of 29.2 per cent is slightly higher than the 2014 gap of 28 per cent (70.5 per cent versus 42.6 per cent), which remains the same as 115 years ago.