The History of Black Homeownership in America

As the US faces an affordable housing crisis, the gap in homeownership rates among Black Americans has been front and center in the storm.

Since the 2008 financial crisis, Black homeownership rates have been on the decline. Today, the gap looks just like not dissimilar to the gap before the 1968 Fair Housing Act was enacted to create equal housing opportunities for minorities.

In the fourth quarter of 2021, the Black homeownership rate dropped to 43.1%, more than 31 percentage points behind the White homeownership rate. Increasing Black homeownership is a crucial part of addressing the racial wealth gap, as homeownership is considered the number one way that families can build wealth and achieve financial stability.

The 1968 Fair Housing Act

In 1993 there was a housing shortage in the US. The federal government began a program designed to increase (and segregate) the available inventory. So they created the Federal Housing Administration. This entity started “redlining”—refusing to issue mortgages to in or near predominantly Black neighborhoods. This deprived the neighborhoods of businesses and basic services like banks and healthcare. Job opportunities and transportation suffered.

This remained in practice for decades. In 1968 the government instituted the Fair Housing Act. This act was meant to prohibit discrimination concerning the sale, rental, and financing of housing based on race, religion, national origin, sex, (and as amended) handicap, and family status.

While the 1968 Fair Housing Act legally eliminated this practice, these old policies have had lasting effects on society and discrimination continues. From 1960 to 1980, the Black homeownership rate only grew six percentage points — from 38% to 43.8% — not enough to close the homeownership divide. Since 1980, the Black homeownership rate has remained fairly constant.

Homeownership and building wealth

A house isn’t just a roof over your head. Owning a house is also an investment, enabling homeowners to build equity. Home equity is a valuable financial tool for homeowners and a great long-term strategy for building wealth.

Black real estate wealth hit a record in 2021, rising 28.9% year over year to a record high of $2.2 trillion in the third quarter of 2021. Real estate equity also reached a new high of $1.4 trillion, a 45% increase from the previous year. While real estate wealth owned by Black Americans rose from 5.3% to 6% the previous year, it still pales in comparison to the 75.7% owned by White Americans.

What’s driving the Black homeownership gap?

While there are many factors behind the gap, research has noted that several areas including income, wealth, lending practices, credit scores, and student loan debt all play a role. 

• Income and wealth: The median Black household earns 61 cents for every dollar earned by a comparable White household. This makes it difficult to accumulate and pass on generational wealth, making it difficult to afford a home. Meanwhile, Black-owned homes in predominantly Black neighborhoods are typically worth less and more likely to lose value than White-owned homes in similar neighborhoods.
  
  
• Mortgage denials and higher interest rates: Black borrowers are also 2.5 times more likely to be rejected for a home loan than White borrowers and more likely to pay higher interest rates, according to NAR. High-income Black homeowners even receive higher interest rates than low-income White homeowners.
  
  
• Student loan debt: Due to the income and wealth gap, Black households are twice as likely to have student loan debt compared to a White household and their median student loan debt is $10,000 higher.
  
  
• Credit score: According to the Urban Institute, the difference in Black and White household credit scores accounts for 22% of the homeownership gap.

Staying optimistic about the future

Although there are many obstacles to overcome, there are several reasons to remain optimistic about what the future of Black homeownership will be.

• A credit system overhaul: The Financial Services Committee has proposed legislation that could narrow the credit gap. The legislation would protect the credit standing of victims of predatory lending and create federal oversight into credit scoring models.
  
  
• The YIMBY movement: The YIMBY (yes in my backyard) movement aims to get rid of exclusionary zoning that prohibits multifamily housing.
  
  
• Equitable economic growth: There are signs that Black wage growth will catch up to White wage growth and the normalization of remote work will lead to better employment opportunities for Black Americans.

Ribbon is committed to removing these systemic barriers and making homeownership achievable for all. To learn more about RibbonCash Offers and how we’re making homeownership possible, contact one of our experts today.