The Color of the Housing ResurgenceGeneral Posts
by Alejandro Becerra
The buying power of minority homebuyers is expected to help fuel a thriving housing economy, especially if reinforced by government initiatives geared towards mortgage ready individuals and families. Although the economic crisis has masked their significance, minority homebuyers will continue to affect the market tremendously.
Overall, lower housing values, a large housing inventory, and historically low interest rates put the potential for homeownership well within the reach of minority buyers. Some housing experts are predicting that the sheer population size of minorities is considered large enough to absorb the increasing housing inventory now being vacated in the market.
The financial sector should now make loans the right way by providing borrowers with reasonable loan terms and conditions, affordable down-payments, counseling and homeownership assistance for eligible borrowers. If mortgage ready minority homebuyers are reached effectively with affordable loans, they can achieve sustainable homeownership and reinvigorate the housing sector.
Impact of the Economic Recession on Minorities
During economic downturns, minorities experience higher unemployment rates and job losses. For example, when the national unemployment rate peaked at 11 percent following the 1982 recession, joblessness among Black workers was nearly twice as high at 21 percent. In early 2009, the unemployment rate was 15 percent for Blacks and 11 percent for Hispanics, compared with 8 percent for Whites.
High-cost sub-prime loans and foreclosures have also been heavily concentrated in low-income minority neighborhoods. For example, according to HUD, the median foreclosure rate from January 2007 through June 2008 was approximately 8.4 percent in low-income minority neighborhoods, considerably higher than the 6.3 percent in low-income White neighborhoods.
Minority Population Growth and Purchasing Power
While the economic crisis has decreased household growth, the emergence of the echo-boom generation, which includes minorities and immigrants, will help trigger long-run housing demand. As the echo-boom generation reaches adulthood and immigration continues to augment other generations, household growth among Hispanics and Asians, especially among married couples with children, will continue to accelerate. The housing now occupied by many older White baby boomers is expected to be well suited to the needs of younger and generally larger minority households. While home prices at the lower end of the market will improve affordability for minority homebuyers, instituting economic policies that will help improve their jobs and incomes will be critical to their ability to afford these lower-priced “starter” homes. Baby boomers are expected to be turning over their homes to younger households in the suburbs of large metropolitan areas, especially as baby boomers start to downsize.
Overall, the vigorous work ethic and burgeoning purchasing power of minorities have the potential of vastly stimulating America’s economic growth. The work ethic of minorities has long been legendary — beginning with African Americans who toiled the land from the time of the American Revolution, continuing with Chinese workers who built America’s railroads, and culminating with Hispanics who help harvest America’s crops and serve as the engines of growth in the service industry. Today they often hold more than one job and/or work long hours, with an impressive record of high labor force participation, low turnover and low absenteeism. Over the past decade, their labor and their earnings, contributed enormously to the nation’s housing boom and economic prosperity.
Minorities also continue to make steady gains in income, education, and new business formation. In 2008, the purchasing power of the three major minorities was nearly $2.4 trillion.
Prospects for Minority Homeownership
By the year 2004, Americans, including minorities, had achieved historically-high rates of homeownership. The rate of homeownership for the entire U.S. population, however, decreased from a record level of 69 percent in 2004 to 67.4 percent in 2009, erasing all gains made since 2000. During the same time span, the rate of homeownership for African-Americans declined from 49.7 percent to 46.2 percent, while that of Asians, declined from 59.6 percent to 57.8 percent.
Since 2004 the rate of homeownership for Hispanics, however, actually increased from 48.1 percent to 48.4 percent notwithstanding the severe impact of the predatory lending practices of recent years. According to the Wall Street Journal, more than sixty percent of all borrowers — not just minorities and immigrants — who had obtained sub-prime loans in recent years would have qualified for safe, conventional loans. Despite the harmful effects of the nation’s housing debacle, homeownership continues to represent the cornerstone of wealth for a majority of Americans.
Nonetheless, many obstacles remain for minority homebuyers. Amassing the down payment, stringent credit requirements, and mounting job losses will continue to impede progress. Down payment assistance and savings programs will therefore continue to be critical to enabling buyers to purchase homes even at today’s lower prices.
In the face of such obstacles, how minorities respond when home prices stop falling and the economy improves will determine to what extent their rates of homeownership will go up again. If the real estate sector can convincingly regain the trust of minority home buyers by actively seeking to loan to well prepared, mortgage ready borrowers, rock-bottom prices, historically low interest rates, and government assistance incentives could well encourage many of them to buy homes.
The majority of employment growth from 2006 to 2016 is expected to be in low-paying service and in high-paying professional occupations. Even if wage levels can be increased and minorities can move into better paying jobs, it will still be difficult for many minority homebuyers to overcome affordability problems.
It is therefore imperative that minorities continue to play a pivotal role in the growth of housing as a consequence of their expanding population growth, rapidly growing purchasing power, and significant employment and entrepreneurial contributions. Accordingly, government policies must focus on improving the education, jobs, and entrepreneurial opportunities of minorities. Over the past several decades, the increasing capacity of minorities to achieve homeownership has contributed substantially to the housing boom in the suburbs, prevented a decline in urban housing markets, and helped stabilize housing markets and communities in many declining small towns and rural areas.
About the author:
Author Alejandro Becerra is a recognized housing expert. He started his career working for the U.S. Department of Housing and Urban Development (HUD) within the International Housing and Mortgage Servicing Divisions, then in later years worked for HUD’s Office of Fair Housing and Equal Opportunity, and most recently from 2000 to 2003 with the HUD Field Office in Tucson, Arizona. He has also held key positions in the federal government, including that of Policy Analyst within the Office of the Secretary in USDA where he helped preserve the federal government’s only rural homeownership program for low- and moderate-income families. To buy a copy of his book Hispanic Homeownership: The Key to America’s Housing and Economic Renewal go to www.barclaybryan.com