Commentary: How to Increase African-American Homeownership

NAR’s Chief Economist Lawrence Yun Comments on How to Close the Persistent Gap in Homeownership Rates between Whites and African-Americans.

WASHINGTON (June 17, 2020) – The interest in homebuying is strong as reflected in the surge in mortgage applications to buy a home. However, there is not enough supply to meet demand. 

Though housing starts in May recovered slightly from the prior month, this marks two consecutive months of depressed levels – down by more than 20% from one year ago – due to the disruption from the economic lockdown. Significant growth in new home construction, however, is required in the upcoming months and possibly even stretching into the next three years. 

Before the pandemic, America faced a housing shortage of around 5 to 6 million homes due to multiple years of underproduction of new homes. Now, in the middle of 2020, the housing shortage has intensified. Consequently, home prices will be pushed higher thereby making ownership opportunities for first-time buyers more difficult. More homes need to be built.

With much of the nation’s attention currently focused on combating racial inequality, particularly as it relates to African-Americans, the following five-point plan would increase the number of African-American homeowners and help close the persistent gap in homeownership rates between whites and African-Americans:

  • Build more homes to increase supply: The lack of housing supply makes converting from renting to owning very difficult. The lack of viable purchase options and resulting competition rapidly push up home prices, precluding some potential first-time buyers from entering the market. 
  • Build more homes in Opportunity Zones: NAR strongly supports Opportunity Zones as a means by which to invest in the revitalization of economically-distressed areas.
  • Increase access to down payment assistance: Saving for a down payment can be the biggest hurdle for renters wanting to become homeowners. In recent years, a growing number of first-time buyers received help from family members with their down payments. However, due to historical gaps in accessing and accumulating wealth, it’s much more difficult for African-Americans to obtain substantial financial assistance from family members. Therefore, increased access to federal down payment assistance based on a certain income threshold is vital, particularly for African-Americans.
  • Strengthen FHA’s loan program: FHA loans have been an important source of financing for first-time buyers and minority households. Shifting federal dollars to strengthen the FHA program could lower mortgage insurance premiums and monthly mortgage payments.
  • Expand alternative credit scoring models: Expanding credit scoring models to include rent and utilities payments – and thereby adding more positive payment histories to better demonstrate financial responsibility – can help increase homeownership opportunities for minority and first-time buyers.

The National Association of Realtors® is America’s largest trade association, representing more than 1.4 million members involved in all aspects of the residential and commercial real estate industries.

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