Recession Widens Racial Homeownership Gap

9.15.11 | The gap in U.S. homeownership rates by race has widened since the great recession, according to newly released U.S. Census data from 2009. Prior to the recession, the gap had shrunk to its smallest ever in 2004. The reopening of the gap is attributed mostly to the foreclosure crisis.

Although homeownership rates for whites remained unchanged at 74% from 2005 to 2009, homeownership rates for blacks –already significantly lower at 47% in 2005– dropped slightly to 46% in 2009. Rates dropped even more for Latinos, from 51% to 47% in 2009, according to an analysis by the Pew Research Center.  Among Asian households, the homeownership rate fell from 60% in 2005 to 57% in 2009. Latinos and Asians are also more likely to live in states more severely affected by the housing crisis like California, Florida, Nevada and Arizona.

This drop is not particularly surprising. We know that minority communities were targeted for subprime loans with higher interest rates and were more likely to be foreclosed on once they fell behind in payments, but the connection to wealth, and the economic security of individuals and neighborhoods needs more attention.

The drop in minority homeownership rates correlates directly with the growth of the racial wealth gap in the United States since the recession.  The Pew analysis presents some dramatic numbers about the rates at which minority families have lost their net worth:

From 2005 to 2009, inflation-adjusted median wealth fell by 66% among Hispanic households and 53% among black households, compared with just 16% among white households.

As a result of these declines, the typical black household had just $5,677 in wealth (assets minus debts) in 2009; the typical Hispanic household had $6,325 in wealth; and the typical white household had $113,149.

Black and Latino families have more of their wealth tied up in home equity than white families,  who are much more likely to hold more diversified assets – stock portfolio and pensions, for example– than families of color are.

Subsequently, they have much more to lose than whites when their homes go into foreclosure. Wealth in many ways determines the well-being of families and communities. It opens access to other important resources such as jobs, education, safety, or public services.

Melvin Oliver and Tom Shapiro published the quintessential study of the disparity in wealth between black and white households in their 1996 book, Black Wealth, White Wealth: a New Perspective on Racial Inequality. They found that even when blacks and whites have similar characteristics in terms of education or work experience, blacks have dramatically less home equity and financial assets.

That wealth gap had begun to close since their study, with the national black-white home ownership gap at an all-time low of 23.7 percentage points in 2004. But the housing crisis and recession appear to have erased those prior gains (The rate has grown again to 25.6 for 2010, the highest in 15 years). Minority families have become even more vulnerable.

Oliver and Shapiro predicted correctly that without resources to fall back on, minorities have had a much more difficult time weathering this economic storm.

Shapiro recently told NPR he thinks this racial wealth gap is likely to grow even worse, unless the economy turns around quickly.

“If a family doesn’t have enough for a safety net for itself, it can’t think about moving forward or moving ahead,” he says.

Five or six thousand dollars does not stretch very far if you lose your job and can’t find another one quickly. And I suspect these families are also less likely to have family members or to be connected to others with resources who can lend a hand during a crisis.

And what is the effect of the growing loss of wealth on minority communities and neighborhoods? BRR research shows that low-income city or suburban communities without a strong infrastructure of services in the public or nonprofit sectors often have less capacity to cope with the growing numbers of foreclosures than those in other urban areas.

Even affluent minority communities like the one NPR profiled, Prince George’s County, Md., are struggling. Local residents tell NPR that some in the county feel they are less likely to attract the same level of business development and tax base as some of the neighboring white suburbs. That fear is one reason why many are hesitant to talk about their growing number of foreclosed homes.  NPR had another story on the wealth gap issue this morning that you can listen to here.

And with the attention this week focused on the growth in the number of Americans living in poverty, and the rising poverty rates among minorities, hopefully policymakers will take action to prevent even more of those who had once seemed secure from sliding into poverty.

Photo by Basic Gov.

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