HOMEOWNERSHIP AND THE RACIAL WEALTH GAP: Policies and Strategies that can Make a Difference JANUARY 18, 2017 1:00PM EASTERN
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DISCUSSION AGENDA WELCOME MONA MASRI ASSET FUNDERS NETWORK OVERVIEW OF THE POST-CRISIS HOUSING MARKET ELLEN SEIDMAN URBAN INSTITUTE PROGRAM HIGHLIGHT MAURICE JONES LISC PHILANTHROPIC PERSPECTIVE LIZA COWAN GLOBAL PHILANTHROPY JPMORGAN CHASE & CO. MODERATED Q/A ASSETFUNDERS.ORG
INTRODUCTIONS MONA MASRI ASSET FUNDERS NETWORK ELLEN SEIDMAN URBAN INSTITUTE MAURICE JONES LISC LIZA COWAN GLOBAL PHILANTHROPY JPMORGAN CHASE & CO ASSETFUNDERS.ORG
Overview of the Post-Crisis Housing Market Ellen Seidman Senior Fellow, Urban Institute AFN Housing Webinar
Homeownership Is Associated With Greater Wealth, But Is Less Accessible to Minorities
Homeownership provides opportunities for wealth building 300,000 Net Worth by Race 270,500 250,000 231,000 200,000 195,000 2013 dollars 150,000 100,000 79,970 90,250 50,000 0 Owners 8,201 5,400 1,100 Renters 5,070 11,600 White Non-White Black Hispanic Other Source: Joint Center for Housing Studies tabulations of Federal Reserve Board, Survey of Consumer Finance, 2014 3
But Far Fewer Minority Families Are Homeowners And Projections Are Not Hopeful Homeownership Rate by Race 1990 2000 2010 2020f 2030f Total 65.3 66.2 65.1 62.7 61.3 Hispanic 43.3 45.7 47.3 46.9 48.2 White 70.1 72.4 72.2 70.8 69.7 Black 45.2 46.3 44.3 41.1 40.0 Other 53.7 53.0 56.3 55.9 56.9 Sources: top: U.S. Census, Urban Institute Projections;f refers to forecast 4
Substantial Disparities in Income and Wealth Are A Root Cause Household Financial Characteristics by Race and Ethnicity, 2013 Median Income Median Wealth 60 160 50 140 120 40 100 30 80 20 60 40 10 20 0 White, non-hispanic Hispanic or non-white 0 White, non-hispanic Hispanic or non-white Federal Reserve Bulletin, September 2014. 5
High Housing Cost Burdens Make Saving for a Downpayment Harder 60% Housing Cost Burden, Renters 80% Housing Cost Burden, Owners 50% 40% >30% blacks and Hispanics pay >50% of income for rent 70% 60% 50% 30% 40% 20% 30% 10% 20% 10% 0% Not Burdened Moderately Burdened Severely Burdened 0% Not Burdened Moderately Burdened Severely Burdened White Black Hispanic Asian/Other White Black Hispanic Asian/Other Source: Joint Center for Housing Studies tabulations of US Census Bureau, American Community Surveys, 2014 6
A Persistent Supply/Demand Gap Keeps Prices High (Thousands of Units) 1-4 family 5+ family Total Private Residential Completions 657 310 968 Manufactured Houses 69 Gross New Supply 1037 Less: Obsolescence Rate* 418 Net New Units 619 Household Formation 1050 Supply/Demand Gap (2015) -431 * 0.31% of existing stock Source: US Census Bureau, U.S. Department of Housing and Urban Development(obsolescence rate) 7
The Picture Has Grown More Bleak Recently
Minority share of new mortgages remains stagnant Borrower race/ethnicity 2004 2006 2009 2012 2013 2014 2015 Black 6% 9% 4% 4% 4% 5% 5% Hispanic 10% 13% 6% 6% 7% 8% 9% Non-Hispanic White 58% 61% 74% 73% 71% 69% 68% Asian 5% 4% 5% 6% 6% 6% 6% Borrower income Low 12% 10% 9% 10% 10% 11% 10% Moderate Low 18% 17% 16% 14% 15% 16% 15% Medium 21% 21% 20% 18% 18% 19% 19% Moderate High 24% 25% 26% 25% 25% 24% 25% High 25% 28% 29% 33% 33% 31% 31% Source: HMDA, Urban Institute calculations. 9
Purchase Mortgage Originations Have Not Kept up with Population Trends And Minority Lending Peaked at Just the Wrong Time 20.0% Purchase mortgage origination share minus population share by race 15.0% 13.7% 10.0% 5.0% 0.0% -5.0% -10.0% 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015-7.0% -7.4% African American Hispanic White Sources: HMDA, Urban Institute calculations. 10
Credit is Tight and Not Getting Looser Default Risk Taken by the Mortgage Market, 1998Q1 2016Q2 Percent 18.0 Total default risk 16.0 14.0 Reasonable lending standards 12.0 Product risk 10.0 8.0 6.0 4.0 Borrower risk 2.0 2016 Q2 0.0 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 Sources: embs, Federal Housing Administration (FHA) and the Urban Institute. Note: All series measure the first-time homebuyer share of purchase loans for principal residences. 11
The Result is Far Fewer Loans Are Being Made Especially to People With Lower Credit Scores Loan category 2001, scaled to HMDA 2015, scaled to HMDA Actual Percent decline 2015, Difference between assuming no >700 unconstrained constraint and actual >700 CL-HMDA merged loans, <660 1,433,986 503,013 65% 1,414,087 911,074 Corelogic-HMDA Merged Database CL-HMDA merged loans, 660-700 CL-HMDA merged loans, >700 861,047 686,073 20% 849,099 163,026 2,356,516 2,323,816 1% CL-HMDA merged loans, Total 4,651,549 3,512,903 32% 1,074,099 Cumulative missing loans, 2009-2015: 6.3 million Source: Urban Institute Calculations from HMDA and CoreLogic data 12
Which Hurts Minorities Disproportionately 20.0% 18.0% 16.0% 14.0% 12.0% 10.0% 8.0% 6.0% 4.0% 2.0% 0.0% White mortgage market share Less than 540 2000 2006 2014 540-579 580-619 620-659 660-699 700-739 740-779 780 or more 1.8% 1.6% 1.4% 1.2% 1.0% 0.8% 0.6% 0.4% 0.2% 0.0% Black mortgage market share Less than 540 540-579 580-619 620-659 660-699 700-739 740-779 780 or 2000 2006 2014 more 2.5% 2.0% 1.5% 1.0% 0.5% 0.0% Hispanic mortgage market share Less than 540 540-579580-619620-659660-699700-739740-779 780 or more 2000 2006 2014 Source: Bhutta, Neil, and Daniel Ringo (2016). "Credit Availability and the Decline in Mortgage Lending to Minorities after the Housing Boom," FEDS Notes. Washington: Board of Governors of the Federal Reserve System, September 29, 2016 13
Why Does It Matter?
Financially, Trying Homeownership Seems to Be Better Than Not Race/Ethnicity Black $5,600 Hispanic $7,300 Non-Hispanic White $7,700 Asian $6,700 Marginal Annual Gain From Homeownership Source: Joint Center for Housing Studies calculations based on 1999-2013 PSID. 15
But The Real Wealth Gains Come from Sustaining Homeownership Renters- Median Net Wealth 1999 2013 Median Change Owners- Median Net Wealth 1999 2013 Median Change Rent to Own Sustained Rent to Own Not Sustained 7,300 99,000 85,400 3,100 1,600-2,800 Always Own 153,100 269,000 91,900 Own with Interruption 87,700 130,000 39,300 Always Rent 1,700 1,500 0 Owner to Rent 57,500 10,000-32,800 Source: Joint Center for Housing Studies calculations based on 1999-2013 PSID using sample weights. Note: Median change shown is the median of the change in each household s wealth. 16
Pros and Cons of Homeownership Opportunities 1. Homeownership is a source of family stability; substantial foreclosure protections are in place 2. Ownership provides greater monthly payment stability. There is no threat of sudden rent increases 3. Buying a home requires saving for a down payment, which encourages saving behavior 4. Ownership can enhance access to larger units, better school systems, and a healthier environment 5. Ownership creates wealth building opportunities through monthly mortgage payments to principal, and leverage, especially if home prices rise 6. Owning provides tax benefits through deductions for mortgage interest and property taxes, while excluding most capital gains taxes Concerns 1. Homeownership in high-opportunity communities is expensive; in struggling communities, house prices may decline, wiping out equity 2. ARMs reduce mortgage payment stability, property taxes and insurance costs can increase unexpectedly, and maintenance and repairs create unexpected expenses 3. Saving for a down payment while paying rent is difficult-- in most years, renters would have earned more if the down payment has been invested in, e.g., stocks 4. School choice may make access to better schools less dependent on where you live; owning may make relocating to better job opportunities more difficult 5. Long-term mortgages build equity slowly at first; in a downturn, equity can be lost if the mortgage goes underwater 6. Tax deductions are less valuable for those in lower tax brackets than for higher income households 17
For more information, please contact: Ellen Seidman, Urban Institute eseidman@urban.org 202-261-5423
OPPORTUNITY Demand for new and creative models of homeownership Homeownership counseling is effective Financial Stability Programs
PROGRESS Detroit - 0% Home Repair Loan Program DC - Tenant Opportunity to Purchase Act Toledo - Readiness, financing & purchase assistance New York State Housing Stabilization Fund Rural - Upgrading manufactured housing
NEXT STEPS Government partnership Comprehensive strategies including jobs & income Pathways to homeownership incorporated in larger strategy Private sector engagement
PHILANTHROPIC PERSPECTIVE LIZA COWAN GLOBAL PHILANTHROPY JPMORGAN CHASE & CO. ASSETFUNDERS.ORG
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