The numbers say it all. At the end of the second quarter of 2024, the U.S. homeownership rate was 65.6% with non-Hispanic white homeownership at 74.4%. Unfortunately, Black, Latino, and Asian and Pacific Islander homeownership rates lagged well behind at 45.3%, 48.5% and 62.8%, respectively.
Why is that? Even though the Fair Housing Act of 1968 helped boost homeownership rates in diverse communities, the legacy of past discriminatory practices — redlining, deed restriction, application segregation — persists. Even today, there are discriminatory covenants, conditions and restrictions on the books in some communities that remain unexpunged.
To make matters worse, the current lower rate of homeownership in diverse communities contributes to the myth that these communities lack the financial resources and education needed to purchase property. This creates a selection bias among mortgage companies, leaving diverse communities overlooked in marketing for new home sales.
Fortunately, there are practices being implemented today that are designed to remove those barriers and truly open the real estate market to previously overlooked communities. These practices and strategies can greatly enhance mortgage companies’ ability to meet these communities where they are and speak to them in terms they can clearly understand.
Racist practices
In the late 1930s and 1940s, there were Federal Housing Administration (FHA) guidelines that told real estate underwriters not to underwrite loans to people who didn’t match the predominant racial makeup of neighborhoods. At that time, the National Association of Realtors didn’t even allow members of the Black community to be officially recognized as Realtors.
During the ensuing decades, discriminatory practices continued in the mortgage industry across the U.S. These practices effectively shut out diverse communities from owning many desirable plots of land and developing wealth that could be passed from generation to generation.
A number of other practices became entrenched during this time that helped skew property ownership opportunities away from diverse communities. Many of these practices remain in place today.
Blacks and Latinos have long been challenged with higher loan denial rates than white and Asian applicants. Even today, the denial rate is 16% for white applicants and 15% for Asian applicants but 26% for Blacks and 22% for Latinos.
A 2023 report on the State of Housing in Black America by the National Association of Real Estate Brokers found that 14% of Black female applicants were offered high-rate loans. This is almost three times the rate for white female applicants.
When the Home Mortgage Disclosure Act (HMDA) was passed in 1975, it was intended to help identify and eliminate discriminatory lending in the U.S. Due to decades of discrimination, many of those within diverse communities today choose not to disclose their race when applying for mortgages for fear that it will jeopardize their chances of being approved. This undermines the effectiveness of HMDA.
Due to the prevalent myth that diverse communities lack the resources and education needed to buy real estate, major mortgage companies have a long history of not marketing to these communities, leaving them with loan access primarily through the FHA. This lack of marketing remains very visible today.
There are other entrenched myths that also contribute to this marketing disparity, even though there’s abundant evidence that these perceptions are baseless. These include diverse communities have less desire to own property than their white counterparts. Or diverse homeowners contribute less to property values than white homeowners or present higher default risks.
If you think of homeownership as a foot race, it’s as if white Americans were given a 200-meter head start many decades ago. Even with some subsequent, well-intentioned legislation and regulation, diverse communities are still playing catch up. But there are practices that can help eradicate that gap.
Significant opportunity
There are some bright spots in the current real estate market that provide a foundation for building a better, more inclusive industry. The current Latino homeownership rate of 48.5% marks a significant rebound from the housing crisis.
In addition, Black households experienced a 60% increase in median net worth from 2019-2022. So, the myth that diverse households lack the financial resources to qualify for quality mortgages is even harder to sustain. Building on that foundation, there are concrete steps lenders can take — and more importantly, are taking — to truly and finally level the homeownership playing field.
It’s impossible to effectively market to diverse communities when your organization’s representatives don’t look like those communities and aren’t speaking to them in ways they comprehend and trust. Make it a priority to hire agents and employees that mirror the communities you want them to serve.
But it’s not enough to hire a more diverse workforce. It’s imperative to develop and promote that talent so that there’s more diversity in the C-suite, at the table where important decisions are made. These employees need to be empowered.
Traditional real estate marketing tactics were designed by and intended for a primarily white audience. They often don’t resonate in diverse communities. Instead, develop advertising that reflects the preferred media platforms, cultural nuances and aspirations of diverse communities. This requires more than simply putting a Black, Latino or Asian face on the cover of a brochure.
It requires a genuine understanding of why diverse communities are distrustful of standard mortgage lending practices and how you can make the process more welcoming and relevant. If your company has a one-size-fits-all approach to lending, it’s almost impossible to take advantage of the significant opportunity that diverse communities represent. Also, be willing to try new, innovative strategies for connecting with these communities, such as:
• Forming partnerships with local diverse businesses and cultural institutions.
• Engaging with local communities at neighborhood events.
• Setting ambitious targets for diversity in your labor force and for generating loan applications from diverse communities.
• Assisting potential buyers with crowdfunding options for generating the money needed for a down payment on a home.
Federal legislation, such as HMDA, the Dodd-Frank Wall Street Reform and Consumer Protection Act and the Fair Housing Act, have helped start the process of leveling the playing field. More recent initiatives, like the American Rescue Plan’s Homeowner Assistance Fund, are also helping.
Erasing the gap
Going forward, local, regional and federal governments can shape additional tax laws, housing practices, credit access and downpayment assistance programs to help erase the gap between white homeownership rates and those in diverse communities. Governments are unlikely to initiate these efforts if mortgage professionals and others don’t put pressure on them to do so.
Also, improving financial education in high schools that serve diverse communities can help prepare young people to be more savvy and enthusiastic homebuyers later in life. It’s one more strategy for remedying some of the issues that have held these communities back.
While there’s clearly more work to be done to boost homeownership rates in diverse communities, the good news is that the situation is improving and there’s great work being done today that can be built upon. Most mortgage companies clearly understand the business case for serving diverse communities and why it’s in their own best interest to become more effective at it. In addition, a number of lenders have already made great strides in diversifying their workforces and expanding their community reach in terms of the loans they provide. Companies are making a more concerted effort to find new ways to connect with and serve diverse communities. The mortgage industry can eradicate the unjust and unnecessary property ownership divide in the near term, but businesses must continue to think differently, innovate and keep this high on the priority list.
