RALEIGH – The mortgage approval gap between black and white applicants for mortgage credit is widening, an analysis conducted by Zillow of data from the Home Mortgage Disclosure Act (HMDA) found earlier this month.
Nationally, 19.8% of black applicants are denied a mortgage when applying, compared to 10.7% of white applicants, the analysis showed. And in North Carolina, one in five black applicants are denied mortgage credit, while 10.9% of white applicants are denied, a spokesperson for Zillow confirmed to WRAL TechWire.
“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,” said Zillow economist Nicole Bachaud, in a statement shared with WRAL TechWire. “While credit borrowers overall are stronger now than ever, the gap in credit access is growing along racial lines.”
According to the analysis, more than 6% of black applicants are denied based on credit history, which accounts for 37% of all black denials.
Meanwhile, the homeownership rate among black households is now just 44%, well below the peak of 49.7% observed in 2004, prior to the Great Recession. In North Carolina, 47% of black households own homes compared to 75% of white households, a November 2021 report from the U.S. Census Bureau showed, according to The North Carolina Housing Finance Agency.
Zillow data also indicates that homes owned by individuals who identify as black continue to lag behind home values of homes owned by individuals who identify as another race. Overall, Zillow’s data indicates that black-owned home values are worth 16.7% less than homes overall.
“Policies and interventions that target the barriers keeping Black Americans from homeownership are keys to achieving housing equity,” said Bachaud.
The pandemic may have worsened housing challenges for black households
Black renters already face challenges to becoming homeowners, a prior Zillow study found. And households of color, regardless of whether they owned the home or were renters, were also more likely to report challenges due to the global coronavirus pandemic. Black-owned businesses were found to be disproportionately affected by the pandemic, as well, according to the Kenan Institute at the University of North Carolina at Chapel Hill.
And a Joint Center for Housing Studies of Harvard University study, released in June 2021, found that more than a third of Black renters were behind on making rent payments in early 2021, compared to 17 percent of white renters.
The “disproportionate impact of the pandemic on Black households has stalled efforts to close gaps in credit access, homeownership, home values and mortgage denial rates, slowing the journey to equity,” the Zillow analysis reads.
According to Zillow’s analysis, black home purchase mortgage applicants who applied for credit in 2020 had a median income of $67,000, $16,000 less than the overall median of $83,000 for all applicants who applied for credit.
That could be one factor for why black mortgage applicants applied for credit with smaller down payment amounts compared to applicants for credit from other races. According to the Zillow analysis, the median down payment on a loan application made by an individual who identified as black was 3.5%, a half percent above the absolute minimum required for a conventional mortgage, and less than half of the overall median down payment across all applicants, which was 8.9%.
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More than 22 years to ‘catch up’
In addition, the analysis showed that black applicants “typically applied to purchase less-expensive homes in 2020 than applicants from other races – a median property value of $225,000 for Black applicants, and $275,000 for all applicants.”
Based on the analysis, Zillow stated that it may take another decade for Black applicants to be able to save the same size down payments as all applicants.
Renters were already feeling squeezed by the housing market in the summer of 2021, as housing prices increased and the eviction moratorium was set to end. And, rents are expected to increase by nearly 8% nationally in 2022, even after decreasing slightly in December, WRAL TechWire reported.
Down payment and down payment requirements are still a significant, and potentially, a widening barrier to what the author of the Zillow study refers to as “full housing equality.”
That’s why some have advocated for policies that could provide down payment assistance.
“Because the wealth of the median Black household is one-eighth that of the median white household, and because housing equity makes up nearly 60 percent of total net worth for Black homeowners (compared with 43 percent of total net worth for white homeowners),” an Urban Institute publication authored by Michael Stegman and Mike Loftin published in April 2021 reads, “America can make progress in closing the racial wealth gap” by closing the homeownership gap.
Even for existing homeowners who identify as black, the analysis found, “it would still take more than 22 years for Black-owned home values to catch up to the median – assuming current trends hold.”
Put another way, a footnote contained within the study reads “assuming the difference in Black and all home value growth rates stays at the September 2022 forecasted levels (0.8 percentage points difference), it would take until 2044 for Black home values to surpass all home values. If Black home appreciation slows down in comparison to all homes, this will take longer.”
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