By Agatha So, Policy Analyst, Economic Policy Project, NCLR
Headlines about the nation’s housing market have focused on the low homeownership rate, currently stalled at 63%, compared to a high in 2001 of more than 73%. Yet, little attention has been paid to the impact of the low Hispanic homeownership rate on America’s ongoing economic recovery, and in turn, the future of the nation’s housing market.
Overlooking this impact is a huge oversight, given that the majority of new households formed in the next two decades will be made up by homeowners of color. In fact, Latinos are expected to account for 40% of those new households. At the end of 2016, the Hispanic homeownership rate increased to 47%, but remained much lower than the peak of 50% nearly 10 years ago. With significant household growth on the horizon, creditworthy Latinos need access to homeownership to ensure that the opportunity to build wealth is available to all Americans in the decades to come.
Source: Home Mortgage Disclosure Act, 2015
Note: In this chart, “No response” indicates that a mortgage applicant selected “I do not wish to furnish this information” to a question requesting their racial/ethnic identity on the mortgage application.
To better understand the impact of Latino homeownership on the housing market, here are six key population and household trends to watch:
- Latinos are a young population, with nearly one million Latinos turning 18 each year. Six in ten Latinos are millenials. In 2016, millennials accounted for the largest group of homebuyers, and 67% of them were first-time homebuyers, an important element for growth in the housing market. Latino millennials are diversifying the pool of recent millennial buyers, and have the potential to create a tremendous demand for homeownership.
- Tight lending standards are making it harder for Latinos to buy a home. According to a recent housing survey, 63% of Americans believe that now is a good time to buy a home. However, many individuals are having a hard time getting approved for a home loan due to excessively tight credit standards. In fact, Latinos are receiving a smaller percentage of mortgages today than before the housing crisis. For example, in 2006, 11.7% of all mortgages went to Latino borrowers, and in 2015, that number is stalled at 8%. Moreover, Latino borrowers tend to have lower credit scores, making a mortgage further out of reach. Today, lenders are making most of their loans to borrowers falling within the range with the best credit. Currently, nearly 50% of home loans are made to borrowers with an average credit score above 750. Only 18% of American consumers have an average credit score above 750.
Source: Home Mortgage Disclosure Act, 2015
- Fewer Latinos were denied a mortgage in 2015 than in 2014, yet Hispanic borrowers are denied at a higher rate than that of Whites. In 2015, Latinos were denied a mortgage at a rate of more than 16%, down from 18% in 2014. Yet, the rate for Latinos was higher than for White borrowers (10%). Latinos were most frequently denied a mortgage due to issues with their credit history or level of household debt.
- Latinos receive fewer conventional mortgages and are denied at a rate nearly twice that of White borrowers. In 2015, the top four home lenders scaled back on FHA lending, prioritizing conventional loan products that largely serve White borrowers. In addition, Latinos were denied a conventional loan at a rate of 17%, nearly twice the rate for White borrowers (9%). Most mortgages made to Latino borrowers were those insured by the government, such as FHA loans. While only 39% of all mortgages were government-insured, 63% of Latinos took out a government-insured mortgage loan, whereas approximately 36% of White borrowers did so.
- Latinos are likely to pay more for their mortgage. In 2015, Latino borrowers paid more for their mortgage than Black and White borrowers. More than 18% of mortgages made to Latino borrowers were higher-priced, compared to 6% of those made to made to White borrowers, and 16% to Black borrowers.
- Foreclosures in the Latino community have resulted in long-term costs to homeowners, future borrowers, and local communities. For Latinos, the costs of foreclosure included the loss of a family’s financial safety net, community instability, and slower economic recovery in areas plagued with high foreclosure rates. Latino homeowners lost two-thirds of their net household wealth due to foreclosures, which interrupted the transfer of family wealth to future generations.
For decades, NCLR has advocated for sustainable homeownership opportunities for Latinos. Building wealth and a healthy housing market cannot be done without opening doors for Latinos to purchase a home. Given how much Latinos rely on FHA to access homeownership, we urge the Department of Housing and Urban Development (HUD) to move forward to implement the Mortgage Insurance Premium reduction as planned. In addition, we encourage lenders and the government enterprises Fannie Mae and Freddie Mac to consider revising their policies on minimum credit scores and credit scoring models to provide broad access to creditworthy borrowers. NCLR is committed to working with the HUD Secretary Carson and federal policymakers to ensure that housing policies facilitate sustainable homeownership for all Americans.