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New Housing Study on Racism

Black mortgage applicants 84% more likely to be denied than white applicants, analysis finds

Black mortgage applicants zillow denied.jpg

Shot of two business persons filling in paperwork at home.

The mortgage approval gap between Black and white applicants has widened, a Zillow analysis of Home Mortgage Disclosure Act data shows.

Black applicants were 84% more likely to be denied a mortgage than white applicants, the data showed, an increase from the 74% disparity in 2019.

Overall, 19.8% of Black applicants are denied a mortgage while 10.7% of white applicants are denied.

“Homeowners have seen a plethora of housing gains during the pandemic, but the growing disparity between Black and white homeownership rates and home values paints the picture of who those winners actually are,” Zillow economist Nicole Bachaud said. “While credit borrows overall are stronger now than ever, the gap in credit access is growing along racial lines. Policies and interventions that target the barriers keeping Black Americans from homeownership are keys to achieving housing equity.”

Black applicants had the highest denial rates in Mississippi (31%), Louisiana (26.1%), Arkansas (26%), South Carolina (25.8%), Alabama (24.4%), Pennsylvania (23.6%), New York (23.4%), Michigan (22.2%) and Florida (21.8%), the analysis found.

More than one-third of denials to Black applicants are based on credit history. Limited financial services and the prevalence of payday lenders in communities of color contribute to poor credit health in those communities, the analysis said. 

Black homeownership rates are still behind the peak of 49.7% in 2004. The percentage plunged during the Great Recession and has rebounded but still sits at 44%

Source: Chicago Real Estate Agent Magazine

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Updated: Boston Real Estate Blog 2022

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I started digging into the information available around real estate policies and systemic racism, and I realized that there wasn’t a good repository of sources for readers (or writers) to consult.

New Housing Study on Racism

In an ongoing effort to provide accurate and relevant information, I’ve compiled this reference guide around racism and housing.

I hope Boston condo buyers, home sellers, and real estate brokers who wish to remain up-to-date on the current on both the Boston real estate market and the nation as a whole will find these resources enlightening. 

University Study on Racism

At the university level, real estate and housing experts have published numerous data-driven articles based on specific areas of study, which provide deeper insight into the issues at hand. The following list categorizes research by the universities that published the findings. 

USC Real Estate Study

Lusk Center for Real Estate at USC Race, Immigrant Status, and Homeownership (LA)

Authored by Assistant Professor Gary Painter in 2000, this study shows that homeownership in general increased during the previous decades, but people of color lagged significantly in attaining homeownership. His data shows that the homeownership gap between minority and white households began to grow in the 1980s in Los Angeles. At the same time, Black households experienced income and education deficits.

Household Location and Race: A Twenty-Year Retrospective (DC)

This 2011 study by Gary Painter and Stuart Gabriel sought to analyze the claims of a previous study conducted twenty years earlier, which examined tendencies toward racial segregation in the Washington, D.C. area. According to the authors, “As in our prior analysis, large simulated gains in Black economic and educational status had little effect on prevailing racial segregation.”

The paper posits that Black households continue to experience limited opportunities based on “traditional areas of settlement.” However, other minority groups seemed “more sensitive to improvements in socioeconomic status.”

Homeownership, Race, and the American Dream

This study, conducted by Stuart Gabriel and Stuart Rosenthal and published in 2003, examines data from the Survey of Consumer Finances regarding homeownership gains within the context of race.

“Findings indicate that household socioeconomic characteristics explain nearly all of the gain in homeownership in the 1990s.”

The authors urge policy-makers to focus their efforts outside the mortgage market in order to remedy homeownership disparities by race.

A Test of Cultural Affinity in Home Mortgage Lending

In 2002, Raphael Bostic looked into two theories regarding how race affects mortgage approval and rejection rates.

“The taste-based cultural affinity hypothesis asserts that lenders have a blanket preference for members of the same race, while the common bond hypothesis asserts that cultural affinity allows lenders to better assess the credit quality of members of the same race,” he wrote. His study found weak support for the first hypothesis while contradicting the second.

Do Households Move to Obtain Higher Benefits? A “Natural Experiment” Approach (Ontario and LA) 

UCLA Real Estate Study

Ziman Center for Real Estate at UCLA Race, Ethnicity, and Income Segregation in Los Angeles

This 2016 paper by Paul Ong, Chhandara Pech, Jenny Chhea, and C. Aujean Lee examines demographic and socioeconomic data within Los Angeles from 1960 and onward, recognizing a geographic transformation based on race and ethnicity.

It also looks at “whether racial segregation could be explained by systematic differences in income across racial/ethnic groups.” Their findings indicate that income differences are not the only indicator of residential segregation.

Wharton School Real Estate Study

The Samuel Zell and Robert Lurie Real Estate Center at Wharton School (University of Pennsylvania) Status Caste Exchange: Preferences for Race and Poverty Status of Neighbors in Large U.S. Metropolitan Areas, 1970-2000

This 2007 paper by Janice Fanning Madden examines census tract data for 36 large metropolitan areas between 1970 and 2000. Her findings indicate that racial segregation seems to persist for people of color across economic and poverty status: “racial integration occurs consistent with status caste exchange: nonpoor African Americans and poor non-African Americans are shifting to the same neighborhoods,” especially in Midwestern and Northeastern cities, where racial segregation is highest.

What Drives Racial and Ethnic Differences in High-Cost Mortgages? The Role of High-Risk Lenders

In this 2017 study, Patrick Bayer, Fernando Ferreira, and Stephen Ross examined high-cost mortgages stemming from seven diverse metropolitan areas between 2004 and 2007, and they found that Black and Hispanic homebuyers were disproportionately affected by these mortgages.

“Even after controlling for credit score and other key risk factors, African-American and Hispanic home buyers are 105 and 78 percent more likely to have high-cost mortgages for home purchases.”

The authors note that these rates can be attributed both to skewed consumer exposure to high-risk lenders and also to mortgage professionals offering different options to borrowers from different racial backgrounds when it comes to the loan process.

Estimating Racial Price Differentials in the Housing Market

This 2017 paper by Patrick Bayer, Marcus Casey, Fernando Ferreira, and Robert McMillan analyzes panel data from more than two million housing transactions within four metropolitan areas in order to look for trends in home pricing based upon race. “We find that Black and Hispanic homebuyers pay premiums of about three percent on average across the four cities, differences that are not explained by variation in buyer income, wealth, or access to credit.”

Taking an active stance against the world’s problems requires understanding what they are and where they came from. These resources should give you a good platform to start learning more about the specific issues in your neighborhood.

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