Insufficient credit remains a substantial barrier to homeownership for Black households, according to a new report from Zillow.
Parsing 2023 data collected via the Home Mortgage Disclosure Act, Zillow found that 24%, or almost one in four, mortgage applications filed by Black borrowers were denied. That’s nearly twice the rate of all applicants and massively higher than the denial rate (roughly one in 10) for white applicants.
Credit history was the most common reason given for turning down Black applicants, accounting for 43% of denials. That rate is higher than it has been in past years, Zillow noted.
“While discriminatory policies like redlining have long been outlawed, the damage from these historic practices is still felt today. Many communities once barred from accessing credit are now finance deserts, with few traditional financial institutions, making it harder to build credit and buy a house,” said Orphe Divounguy, senior economist at Zillow.
“That’s why it’s so important to expand credit access. Allowing rent payments to count in credit scores is one example of how to move the industry forward.”
Zillow observed that the mortgage denial rate for Black households, which has remained disproportionately high over the years compared to other demographics, has left many Black families on the outside looking in when it comes to major recent wealth gains from homeownership. Consider that the current homeownership rate for Black Americans, according to Federal Reserve Economic Data, is almost 46%. That’s down from the peak ownership rate of nearly 50% achieved in 2004; since then, home values have bounded by 117%.
Zillow also noted that the values of Black-owned homes remain lower than typical home values despite increasing at a faster-than-average rate since 2019. Per Zillow, if the typical home was worth $1, white-owned homes would be worth $1.03, while homes owned by Black households would be worth just 85 cents.
