Black homeownership's stall during COVID-19 pandemic is the 'epidemic after the epidemic'

Eboni Taylor searches online for a home every day.

Taylor, 35, and her husband, Andarius, have been trying to buy a house in Detroit for the last year. But student loan debt, the daily costs of living, and competition with buyers who can pay hundreds of thousands of dollars in cash have kept their dream out of reach.

"How many times I’ve gotten my hopes up,'' says Taylor, Michigan executive director for the advocacy group Mothering Justice. "I'm still hopeful, but I'm definitely not as emotionally invested in the process."

During the COVID-19 pandemic, mortgage interest rates plunged to their lowest levels on record, fueling a homebuying rush as many Americans sought to take advantage of low borrowing costs.

But just as Black people disproportionately lost their health and jobs during the crisis, they also lost more ground on homeownership, as the gap between Black and white owners widened, hardening a financial divide that has resulted in the typical white family having eight times the wealth of the typical Black family.

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At the end of last year, the Black homeownership rate was 44.1%, virtually the same as the 44% who owned homes during the same period in 2019, according to an analysis of U.S. Census Bureau data by the Center for American Progress. The homeownership rate for white Americans meanwhile, increased to 74.5% from 73.7%.

“When there’s an economic shock like we’ve seen with this pandemic, it’s often the case that Black people take two steps back while white people take two steps forward,'' says Andre M. Perry, a senior fellow with the Brookings Metropolitan Policy Program and the author of “Know Your Price: Valuing Black Lives and Property in America’s Black Cities."

The pandemic reversed a positive trend. The Black homeownership rate was on the rise at the start of the decade, increasing to 47% in the second quarter of 2020, up from 40.6% during the same quarter the previous year, according to the Federal Reserve Bank of St. Louis.

"These are the moments (where) we have to be deliberate about uplifting people who’ve been discriminated against historically," Perry says.

For many Americans, a home is the most valuable asset they own, with equity that can help pay for a child's education, seed a small business, or create an inheritance handed down to the next generation.

"The different changes in homeownership rates between Black and white families show that opportunities to build wealth moved further and faster out of reach for Black families than for white families,'' says Christian Weller, a senior fellow at the Center for American Progress, who co-wrote the analysis and is a professor of public policy at the University of Massachusetts, Boston, McCormack Graduate School.

"Yet,'' Weller says, "Black families actually need to build wealth faster than white families because they typically have a lot less to begin with.''

Unemployment rises

During much of the pandemic, the average 30-year-fixed mortgage rate hovered at 3.07%, according to the Mortgage Bankers Association.

Mortgage rates dropped to record lows more than a dozen times in 2020, and this January, the average rate dipped to 2.65%, the lowest on record, according to mortgage finance company Freddie Mac. .

But a number of factors made it harder for Black buyers to take advantage of those lower borrowing costs, experts say.

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Black Americans lost their jobs at a higher rate than white Americans during the pandemic, likely preventing many from participating in the homebuying rush, says Daryl Fairweather, chief economist for the national real estate brokerage Redfin.

White people were also more likely to be able to work from home, enabling them to more easily relocate to communities where they could better afford a home, she says. And white Americans were more heavily invested in a soaring stock market, which offered another source of cash to buy a house.

“Wealth creation was concentrated among people who had wealth to begin with, and again, that’s going to skew more white than Black,’’ says Fairweather. “White Americans …were better able to buy a home if they kept their jobs, and better able to move somewhere more affordable and enter into homeownership through that path.’’

Prior to the COVID-19 crisis, "the Black employment rate was improving and when employment improves and incomes improve, that's when you start to see homeownership rates improve,'' says Fairweather. "The pandemic derailed that.''

'No one should have to worry about where they lay their head'

Nakitta Long has a master's degree in criminal justice and works full time. But she cannot find an apartment to rent, let alone a home to buy.

A 45-year-old mother of four in Winston-Salem, North Carolina, Long lost her job at an auto manufacturer last spring, at the start of the COVID-19 pandemic. After struggling to pay rent, she was evicted from her rental home at the end of April when its owners sold the property.

"We've been homeless ever since,'' says Long, who is now working full time, but has struggled to find housing because of her past eviction and spotty credit. "I would have never thought in a million years that me and my kids, at this point in my life, would have to use a P.O. box for our address.''

Long is studying for her real estate license, hoping that can help pave the way for her to eventually buy a home of her own.

"I want to buy property for my family to never (again) go through what I’m going through,'' she says. "My mom doesn’t have any property. She's living in the same apartment we grew up in. .. I’m hoping to break that cycle.’’

Long adds that "no one should have to worry about where they lay their head. Your home is where you sleep, where you dream ... When you don't have a place where you can say, 'I can stay here, and grow,' you have nothing.’’

Historic hurdles to homeownership

Systemic inequities and outright bias have long hindered the ability of Black Americans to buy or hold onto property.

Redlining, a discriminatory practice, prevented Black Americans from getting mortgages for decades. Restrictive covenants barred Black residents from buying homes in white neighborhoods, and Black property owners were often displaced when the construction of major freeways split Black communities.

Additionally, the fact that "Black people have been discriminated against in their employment meant they were earning less and less able to afford to buy a home,'' says Fairweather. "That persists today. There’s a huge Black, white income gap.''

More recently, Black people were disproportionately targeted for the predatory loans that contributed to the housing crash and major recession that struck in 2008. Many suffered damage to their credit profiles when they were unable to keep up with payments loaded with exorbitant interest rates, or lost homes that were now worth less than they'd paid for them.

Black buyers often work overtime to earn the money to buy a home. A Redfin analysis found that among Black respondents, 30% got an extra job in order to afford their first house versus 22% of whites.

And Black first-time homebuyers tended to earn more than their white counterparts, with 21% making at least $150,000 a year as compared with 11% of first-time white homebuyers. Meanwhile, 58% of white buyers made less than $50,000 annually when they purchased their first home, versus 34% of Black homebuyers with a similar income – a gap that may be partly due to Black buyers having to meet higher lending standards, Fairweather says.

Missing record-low interest rates

If borrowing costs begin to escalate, homebuyers who missed out on record low interest rates may find themselves with "less revenue for the same amount of house,'' says Perry. You start out with "less equity,'' he says, which means less money to put towards other expenses or goals.

Yet, even when interest rates are historically low, borrowers with significant debt or minimal down payments may still get turned down for the lowest-cost loan.

“This is where discrimination shows up in credit scores,'' Perry says. "Black people take out more loans and that’s a direct result of just not having as much wealth ...We’re compromised in terms of our debt-to-income ratio, which hurts you in terms of what interest rate you get if you qualify.’’

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And because even Black workers with college degrees tend to earn less than their white peers, it can be difficult to build up a significant pool of cash, locking some Black buyers out of the bidding wars that have been a hallmark of the heated housing market, Perry and others say.

"When you don't have the discretionary resources,'' Perry says, "you just have a harder time competing.''

Student debt, lack of cash are barriers to homebuying

Taylor found a home she hoped to buy for her family, which includes two sons, ages 3 and 4. But she lost out when another buyer was able to offer $240,000 in cash.

"I can't compete with that,'' she says. "My husband and I don't have $150,000 to $250,000 in cash to just put down.''

Taylor hasn't encountered direct racism or sexism in the home buying process, she says. But she believes some of the hurdles she and her husband have to overcome reflect the financial burdens that disproportionately affect Black Americans, like student loan debt.

While her husband pursues a doctorate, Taylor is going to school for a second master's degree, in business administration, with the "hopes we can get to a place where we can become higher earners,'' Taylor says. In the meantime, along with tuition for their sons' school, "we have our rent, we have student loan debt ... and at the end of the day it's just a bit harder to really save large amounts.''

The Taylors have put aside $10,000 and are working with a program that assists first-time homebuyers. But so far, "we’re not in a position ... to even get to that basic point of moving out of our 400-unit building,'' she says.

Taylor's parents and her mother-in-law own homes, and Taylor is eager to have her own backyard where her sons can play. But Taylor also sees a house as a financial foundation she and her family can build on.

“I want to own a home because it’s a way to build wealth,'' she says, adding that she envisions using her house's equity to eventually buy a rental property or launch a business. "I want to be in a position many years from now when we've spent time in the home and the market is in a good place... to sell and invest what my husband and I receive."

Rise in homeownership among Black millennials

Despite the slowed progress, there has been an uptick in ownership among Black millennials, with the homeownership rate of those under 35 rising to 45.1% in the first quarter of this year, compared with 44.1% in the fourth quarter of 2020, according to U.S. census data.

That is likely due to younger Black people being able to save money during the COVID-19-related shutdowns, Perry says, and often buying in largely Black communities where prices tend to be lower because properties are undervalued.

To address the broader homeownership gap between Black and white Americans, federal policies should take into account wealth disparities, Perry says.

"There’s a difference between wealth and income, and most of our policies only consider income,'' Perry says. "It’s very difficult for (Black) upwardly mobile, college-educated people to acquire homes because their grandfathers were denied opportunities to build wealth.. ... It’s a heavier lift when you have to take out more student loans. It's a heavier lift when you have jobs without basic health insurance.''

Fairweather says that “the most direct way to address the gap would be reparations to give wealth back to Black people because they were denied it historically.''

There could also be down payment assistance for first-time homebuyers, or for those who are first-generation homebuyers.

"It would still get at the issue that some people don't have that generational wealth to help them become homebuyers,'' Fairweather says.

Contributing: Swapna Venugopal Ramaswamy

This article originally appeared on USA TODAY: Mortgage rates plunge, but gap between Black, white homeowners grows