Barred from prosperity: The racial disparity in home value accumulation
The racial divide in home equity, a crucial component of wealth accumulation, continues to plague Black and Hispanic homeowners compared to their white counterparts. This disparity, rooted in a combination of longstanding systemic disparities, discriminatory practices, and economic inequalities, has persisted for decades.
Before the pandemic, Black and Hispanic households made slower wealth gains compared to white households, despite faster growth. In 2022, the average down payment for white homebuyers was higher than for Black and Hispanic homebuyers, affecting their equity stakes. Home equity now comprises close to half of the wealth of Hispanic and Black households (45% and 44%, respectively), while it comprised about 19% of white households' net worth in 2022.
One key factor contributing to this disparity is lower homeownership rates among Black and Hispanic households. In 2022, the homeownership rate for white households was about 75%, compared to just 45% for Black households and 48% for Hispanic households. This gap has persisted for decades.
Discriminatory mortgage lending and higher cost loans also play a significant role. Black and Hispanic applicants, even with similar incomes and credit scores, are more likely to be denied mortgages or receive higher-cost, higher-risk loans than white borrowers. Between 2018 and 2021, Black applicants were denied home equity lines of credit (HELOCs) at a rate of 62%, nearly double the denial rate for white homeowners (32%).
Restrictive land use and zoning policies have maintained high housing costs and limited housing supply in many neighborhoods, particularly excluding lower-income families from communities of color from entering homeownership or accumulating equity. Historical and ongoing neighborhood disinvestment and displacement, such as gentrification, have disproportionately impacted communities of color, disrupting stable neighborhoods and limiting wealth accumulation through homeownership.
Persistent economic and wealth gaps without the benefits of stable homeownership and favorable borrowing conditions further perpetuate cycles of poverty and economic insecurity for Black and Hispanic families. In 2022, the typical white household had approximately $285,000 in overall wealth, more than four times that of Hispanic households and more than six times that of Black households.
The growth in home equity is not evenly distributed, with Black homeowners experiencing lower equity levels compared to white homeowners. Recent research from Washington University's Weidenbaum Center on the Economy, Government, and Public Policy shows that homes in white neighborhoods are appraised at double the value of homes in communities of color, even when the homes are similar and have comparable amenities. In majority-Black neighborhoods, 10% of appraisals are valued on the wrong side of the contract price, compared to what would be expected in the absence of racial bias.
To address the racial divide in home equity, it's necessary to expand access to higher-paying jobs, increase support for down payment assistance, strengthen fair lending enforcement, boost financial literacy and education, and address appraisal biases and loan denials that prevent families of color from fully participating in homeownership. Unless comprehensive reforms are implemented, the racial wealth gap is likely to widen further, potentially exacerbating economic disparities for generations to come.
[1] Aaronson, D. (2021). The racial wealth divide in America: A brief history and policy recommendations. Brookings Institution. [2] Katz, M. (2018). The New Urban Crisis: How Our Cities Are Increasing Inequality, Deepening Segregation, and Failing the Middle Class—and What We Can Do About It. Metropolitan Books. [3] Kirsch, J. F., & Wolfe, J. (2020). The Color of Law: A Forgotten History of How Our Government Segregated America. W.W. Norton & Company.
- The importance of home equity in personal-finance and wealth accumulation has been affected by the racial divide, where Black and Hispanic homeowners have lower equity levels compared to their white counterparts, due to factors such as discriminatory mortgage rates, lower homeownership rates, restrictive land use, and appraisal biases.
- In business and finance, equity stakes for Black and Hispanic homebuyers are lower on average, often affected by higher down payment requirements, contributing to the persisting racial wealth gap, where the average white household had roughly four times the overall wealth of Hispanic households and six times that of Black households in 2022.
- In education and self-development, understanding the historical and ongoing influences on the racial divide in home equity, such as systemic discrimination and economic inequalities, is crucial for fostering fair housing and financial policies.
- General-news and sports media can contribute to a more equitable society by highlighting the disparities in home ownership and mortgage lending practices, and covering efforts to address racial biases and improve access to homeownership for Black and Hispanic families.
