Opinion by Nicole Bachaud for CNN Business Perspectives
The country’s sizzling housing market is a double-edged sword: Millions of existing homeowners have been given a boost as they watch their equity grow, but millions more would-be homeowners are struggling to get a foot in the door — especially color buyers.
Through January of this year, the typical U.S. home is up more than $50,000 year-over-year — an increase of nearly 20% — as millions of buyers bid against each other in a market characterized by historically low inventories. The Sun Belt, which has been a relatively affordable alternative to the extremely expensive coastal markets, has been particularly hot, with home prices in the major markets rising by as much as 45%.
It’s increasingly looking like there’ll be more of that this year. Home value growth has accelerated well ahead of the typical spring shopping season, and we’ve just experienced the biggest inventory decline in at least three years. Zillow’s economic research team forecasts that property values will rise another nearly 20% by the end of the year.
While this is good news for homeowners who are watching their equity grow, millions of Americans trying to buy a home for the first time are watching that dream slide further and further into the distance. This is especially true for black Americans, who have been hit hard by the pandemic-related job losses. Black home ownership is lower today than it was a decade ago. A big part of the problem is that black Americans typically have lower incomes and assets, making it harder to save for a down payment. And they are more likely to have no credit history and be denied a mortgage.
The typical black household has less than a quarter of the wealth of a typical white household — a $3 trillion gap that has widened over the past decade. Housing inequality — caused by generations of systemic inequality, such as redlining and unequal access to credit — accounts for almost 40% of that gap. Black-owned homes are worth about 18% less than white-owned homes.
Taken together, all of these factors mean that despite unprecedented growth in the housing market, black families are likely to continue to fall behind. And since home ownership is a major contributor to generational wealth in America, their children and grandchildren may fall further behind as well.
But there are steps we can take to prevent the wealth gap from growing any further:
Build, build, build
It will require adding inventory of all kinds to significantly slow price growth and open up homeownership to more Americans.
More than 60% of homes in the United States are detached single-family homes, with many of these neighborhoods largely created and maintained by decades-old zoning restrictions. They also skew more white and tend to be more expensive than the wider metro area they’re in.
Relaxing zoning rules to allow modest densification in single-family neighborhoods would add millions of homes to our stifled housing supply. And a majority of homeowners – and two-thirds of black homeowners – agree it should be allowed. Zillow research has shown that adding one additional unit to just 10% of single-family lots can create more than 3 million new homes in just 17 metro areas. This is especially important for black households who tend to live in higher-density housing, including condos and townhouses.
reform the credit system
People with structural access to credit and strong credit histories are more likely to own a home.
Black Americans are more likely than whites to have no credit history, and those with marginal, poor, or nonexistent credit will have trouble getting credit and will pay more for it. The majority of Black, Native American and Colored (BIPOC) communities also have less access to traditional financial services and are closer to predatory services such as payday lenders and pawn shops.
We need to create a credit reporting system that routinely accounts for things like rental history and utility bill payments (and that doesn’t weigh as heavily on credit cards, car loans, and mortgages) and work to provide equitable financial services to underserved communities. Fannie Mae has recently started considering rent payment history to give some buyers a better chance of qualifying.
Help with deposits
Making a down payment is an increasingly difficult barrier to home ownership. First-time buyers should expect to save a year longer on a down payment than they did five years ago. There is help — in fact, more than 2,000 counties have 10 or more programs available that provide grants or loans to help with down payments and closing costs. However, shoppers are generally unaware of the help available, and there must be more.
Additionally, first-time buyer savings accounts offer people a tax-free way to save for a down payment and closing costs, similar to programs that provide tax-free college savings. Such accounts are now available in some states, but the federal government should take the lead in making them available everywhere.
Bias training and protections
Everyone should be able to shop and find a home free from bias, discrimination and racism. Anyone responsible for real estate license renewal requirements should mandate implicit bias training. This way, industry professionals have the tools they need to ensure they are not creating barriers to access specific communities or opportunities. Similarly, more states should require fair lending training that addresses the impact of bias, and lenders should review and update their training to ensure it is addressed. The industry should also embrace remote desktop valuations that rely on visual technologies such as 3D tours and digital floor plans, rather than an in-person visit to the property. This can mitigate bias in the appraisal process, allowing existing BIPOC homeowners to use their equity more fairly and be protected from discriminatory practices.
No one alive today will see America achieve racial housing equality. We must reinvest in these and other solutions to prevent the gaps in this overheated market from widening, and put ourselves on track to ensure growth in the housing market is equitable, fair and beneficial.
The CNN Wire
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