The Role of Race in Real Estate

Zillow study finds two minority groups may have a harder time in the housing recovery.

Minority groups struggle to achieve homeownership

When we think of financial opportunity in the U.S. we like to assume the playing field is equal regardless of your race, color or creed. However, a new data study by the real estate experts at Zillow reveals that race may have some relevance when it comes to consumer’s ability to recover from the housing crisis and qualify for financing in this new day of tougher regulations.

The numbers reveal that the two biggest minority groups in the U.S. – African American and Hispanic – are having two major issues during the housing recovery:

  1. Property values for these minority groups are recovering much slower than they are for whites and Asian minorities. Essentially, minority home values have not recovered as quickly and remain well below pre-collapse levels.
  2. Homebuyers in these two minority groups are also finding that they have a more difficult time qualifying for financing – especially when it comes to conventional mortgages.

It’s important to note that this study does not directly point to discrimination as the reason why African Americans and Hispanics are having a harder time. Instead, they conclude that income disparities and simple geography both play a big role in creating this disparity.

Zillow Chief Economist Stan Humphries explains that often the disparities, “can be explained by plain differences in finances and geography, it’s clear that the housing playing field remains strikingly unequal in this country.”

“Black and Hispanic applicants for conventional home loans make roughly $20,000 less per year than white applicants, resulting in much higher denial rates,” Humphries continue. “Similarly, black and Hispanic communities are clustered in areas that saw huge run-ups in home values prior to the recession, and even larger drops during the crash.”

Throughout the nation, the mortgage loan denial rate is 12.4 percent. However, both black and Hispanic groups have denial rates that are more than double that number. Black applicants have a denial rate of 27.6 percent and Hispanics have a denial rate of 21.9 percent. At the same time, Asian minorities had a denial rate of 13.3 percent and white applicants are actually below the national average at 10.4 percent denial.

No matter the reason, the fact remains that if you are a black or Hispanic homebuyer, you may encounter difficulty during the mortgage approval process once you find the home you want. It’s vital to have your financial world in order – particularly if you want to secure a conventional mortgage. You will need the full 20 percent down payment on the purchase price of the home, plus be able to adequately prove a steady income and stable financial outlook. Additionally, you need to have debt minimized so your debt-to-income ratio is as low as possible when you apply.

You should also keep in mind that while conventional loan denial is high amongst minorities, denial rates on FHA loans are much lower. If you don’t have the financial outlook necessary to qualify for a traditional mortgage, look into options for FHA financing. If you have questions or need help finding the right path to successful ownership, call us to speak with a HUD-certified housing counselor for free.

And remember, while housing challenges may exist for minorities even without discrimination, you should know your rights when it comes to Fair Housing for both housing and financing accessibility. Consolidated Credit has a 3-part video series that helps explain the Fair Housing Act and your rights as a consumer: