Housing Market Decoded: Fair Housing At 55
Expanding homeownership remains a crucial task, says Dr. Lisa Sturtevant, as the White-Black homeownership gap is even wider now than it was in 1970.
Decisions in residential real estate are often based on market data — sometimes conflicting, often confusing. Housing Market Decoded, authored by economists and other market experts, helps put the data in context so you can make sense of the numbers.
In 1970, two years after the passage of the historic Fair Housing Act, the Black homeownership rate in America was just 42%. Before the Act was passed, racial discrimination in the housing market was routine and overt. The Fair Housing Act was designed to put an end to the roadblocks Black Americans faced to becoming homeowners and building wealth through homeownership.
But more than five decades after the Fair Housing Act was passed, Black homeownership rates have not budged, and racial disparities in the housing market have widened. Just before the pandemic, the Black homeownership rate in the U.S. was exactly the same as it was in 1970 — 42%. Rock-bottom mortgage rates in 2020 and 2021 lifted homeownership rates across the board, but in 2022, the homeownership rate for Black households was just 45%. By comparison, in 2022, 75% of White households in the U.S. owned their home.
The Black-White homeownership gap is a stark illustration of the situation. In 1970, the homeownership gap was 23%. Today, the gap has widened to 30%.
All participants in the residential real estate industry — real estate agents, builders, lenders, appraisers and advocates — should be looking for ways to close this gap. Reducing the homeownership gap is essential for closing the Black-White wealth gap, which is even wider: The typical White household has 13 times more wealth than the typical Black household.
Addressing disparities in access to homeownership is also important for having an efficient, fair and well-functioning housing market. When more people can participate in the market, all parties benefit.
Closing the homeownership gap
April is National Fair Housing Month, which means it is an opportune time to review the specific ways we can help expand homeownership opportunities. There are no simple solutions because the problem is persistent and complicated. But there are some common sense ideas that can make a difference.
Build more housing
An insufficient supply of housing creates affordability challenges and makes it difficult for many moderate-income households to become homeowners. Depending on the source, the nation currently has a housing shortage of between 3.8 million and 7 million. The inventory of homes for sale is at historically low levels. Home prices are rising much faster than incomes, as would-be homebuyers are competing over relatively few homes.
To help bring more people into homeownership, we need to build more housing and we need to build a greater variety of for-sale housing, including smaller units that are more affordable. There are many challenges to building new housing, but a major obstacle is local regulations and zoning that prohibit the amount of housing that can be built.
Revise credit scoring models
Credit scores play a key role in determining who can qualify for a mortgage and become a homeowner. Research has demonstrated that current credit scoring models used by lenders disproportionately disadvantage non-White applicants, even those with otherwise similar incomes. The use of alternative credit data and scoring models can improve how a borrower's creditworthiness is measured and ultimately offer more people the opportunity to access homeownership. Fannie Mae and Freddie Mac recently approved two new credit scoring models that can be used to determine eligibility for the government-backed loans. Expanding how we evaluate a borrower's ability to pay back a loan—through research, machine learning, and other tools—and making changes to processes where there are systematic biases is essential for closing the homeownership gap.
Ensure a fair marketplace
A concept at the heart of the Fair Housing Act is ensuring an open and equitable housing marketplace. The multiple listing service (MLS) is that marketplace, where real estate brokers cooperatively share information in order to more efficiently serve buyers and sellers and facilitate home sales transactions.
The MLS levels the playing field for homebuyers, allowing any prospective homebuyer the ability to see all homes available for sale, creating a level of equity and inclusiveness that would not exist without the MLS. The MLS benefits all sellers by making information about every home available to the widest audience so that sellers can get the best offer on their property.
Alone, these strategies will not solve the homeownership gap that has been centuries in the making. But without these approaches, it will be impossible to address inequities.
Dr. Lisa Sturtevant has been involved in research on economic, demographic and housing market issues for more than 20 years. She is currently Chief Economist at Bright MLS, where she leads research and forecast activities for Bright and serves as a thought leader on the housing market. The views expressed in this column are solely those of the author.