Affordable housing shortage, wealth gap hold back Black families – Crain’s Chicago Business

Orphe Divounguy On the Economy: Housing disparities widened during the pandemic. And that expanded the wealth gap, too.

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Nationally, fewer than half of all Blacks own their home compared to more than 70% of white households. The racial and ethnic gaps in homeownership were wide even before COVID-19 and the pandemic surge in house prices and rents only expanded the gulf. According to research published by the National Association of Realtors, the Black homeownership rate in the United States is lower today than it was a decade ago.

Unfortunately, the pandemic buying frenzy meant that prospective Black buyers—who earn less on average than other Americans and have less access to credit—struggled to keep up with bidding wars associated with quickly rising house prices. All told, homeownership increased for all races during the pandemic, but Black homeownership grew more slowly than it did for white households.

There are many reasons Black renters face huge obstacles on the road to homeownership. First, Blacks disproportionately live closer to cities, where rents tend to be higher. What’s more, research from Zillow shows that minority renters also face higher upfront costs—from submitting a higher number of applications and being rejected more often to paying higher security deposits. The disproportionately higher costs associated with renting lengthen the time it takes to save for a down payment. Perhaps as a result, Black mortgage applicants also tend to make smaller down payments when applying for a loan—a median of 3.5%, less than half the overall median down payment of 8.9%.

Related: Naturally occurring affordable housing occupies ‘the space between’

Then, there’s access to credit. More than 50% of white households have a FICO credit score above 700 compared to only 21% of Black households, according to research by the Urban Institute. Finally, Black mortgage applicants are denied 84% more often than white borrowers are, according to data from the Home Mortgage Disclosure Act, with poor or nonexistent credit history being the most commonly cited reason for the denial. Mortgage denial rates among Black applicants increased by 10 percentage points during the pandemic.

Research also shows that even after accounting for income, credit, and loan-to-value and debt-to-income ratios associated with a mortgage application, Black mortgage applicants experience different processing times and worse outcomes than similar whites. Black applicants are 2.9 percentage points more likely to have their mortgage application denied relative to similar white applicants.

Related: Chicago’s generational opportunity in affordable housing

Rising housing costs disproportionately affect low-income households and minorities contributing to higher wealth inequality. And the resulting increase in the wealth gap drags down U.S. economic growth. That means lower living standards for everyone, not …….