The effect of neighborhoods on persistent inequality between races

A new book by sociologist Patrick Sharkey highlights how neighborhood conditions contribute to persistent inequality by race:

Put more bluntly:

Even if a white and a black child are raised by parents who have similar jobs, similar levels of education, and similar aspirations for their children, the rigid segregation of urban neighborhoods means that the black child will be raised in a residential environment with higher poverty, fewer resources, poorer schools, and more violence than that of the white child.

This might not seem to make sense: education gains have been fairly substantial, so shouldn’t income and wealth follow? The problem is that whites are more likely to lock in gains over generations. Blacks are more likely to be in a higher income centile than their parents than whites (55/50), and less likely to be in a lower one (44/49). But they’re more likely to be in a lower income quintile (53/41) and less likely to be in a higher income quintile (35/45). Whites are more likely to inch down and leap up the socioeconomic ladder; for blacks, vice versa.

By way of explanation, Sharkey points to the work of Northwestern sociologist Mary Pattillo on the black middle class: “When white families advance in economic status, they are able to translate this economic advantage into spacial advantage by buying into communities that provide quality schools and healthy environments for children. An extensive research literature demonstrates that African Americans are not able to translate economic resources into spacial advantage to the same degree.” In the real world, this is the reality for middle-class neighborhoods like Chatham, which struggle to maintain their economic and residential base while buffeted by violence creeping in from neighboring communities.

This research counters the idea that decreased educational differences necessarily leads to reduced wealth and spatial differences. There are other important factors at work, including the spatial context. Education is not a silver bullet that solves all of the issues related to poverty.

This would seem to line up with research on wealth differences between whites and blacks (see Black Wealth/White Wealth by Oliver and Shapiro). Even if blacks have made educational gains, wealth is partly generational. Wealth really helps with buying a home in middle- and upper-class neighborhoods that then offer better schools, environments, and social capital. And this homeownership gap is still large in the first quarter of 2013 (Table 16): 73.4% for whites, 43.1% for blacks, 45.3% for Hispanics, and 54.6% for all other races.

US homeownership rate drops to 65%

The homeownership rate in the United States dropped in the last quarter to its lowest level since 1995:

The Census Bureau reported Tuesday that the nation’s homeownership rate slipped to 65 percent in the three months that ended in March, a decline from 65.4 percent posted in both the first and last quarters of 2012.

This suggests the housing market is still having a lot of trouble.

Here is the complete 12 page press release from the Census. Some interesting extra info:

-Homeownership rate 1Q 2013 by age: Under 35 36.8%; 35-44 60.1%; 45-54 71.3%; 55-64 77.0%; 65 and over 80.4%.

-Homeownership rate 1Q 2013 by race/ethnicity: Non-Hispanic White alone 73.4%; Black alone 43.1%; All other races 54.6%; Hispanic (of any race) 45.3%.

Here is a table of homeownership rates each decade since 1900 – the biggest jump seems to be from 1940 to 1960, coming out of the Great Depression and then into the era of mass suburbanization.

 

 

Americans optimistic that their home’s value will increase in the next year?

Gallup recently released results of a new poll regarding homeownership and housing values. Here is some of the interesting data:

Americans are much more positive about the direction of housing prices this year than they were last year. They are significantly more likely to expect the average price of houses in their area to increase over the next 12 months than to decrease, 33% vs. 23%. Last year, Americans were about evenly split, 28% to 30%…

Today’s housing price expectations differ sharply from those during the housing price boom. In 2005, 70% of Americans expected house prices in their area to increase, while 5% expected them to decrease. Expectations moderated as prices hit record levels in 2006-2007. Expectations became more negative during the recession and financial crisis. In 2010, price expectations were similar to those anticipated today…

Fifty-three percent of Americans believe their house is worth more today than when they bought it, down significantly from 80% in 2008 and 92% in 2006. It confirms that many Americans are underwater in terms of the value of the home they currently own.

These lowered expectations about their housing values seems to go along with lower homeownership rates, reported at 60% by this Gallup data but the Census said the homeownership rate was 66% in the fourth quarter of 2012. I would guess that the Census has a bigger and better sample than Gallup to assess this.

I wish they had gone on to ask whether homeowners believe their houses should make money in the long run. These lowered expectations come after a period from roughly the early 1990s to middle 2000s where more people viewed their homes as good investments. Even after the economic crisis, I would guess a majority still believe their homes should earn them some money in the long run even if it takes a little longer to get that value.

Changes to American housing going to come from Hispanics and echo boomers?

At a recent conference, several experts talked about how two demographic groups are influential for American housing trends in the coming years:

Most of the country’s population growth is happening in minority populations – the same groups hit the hardest by the housing downturn in terms of lost household wealth and declines in homeownership rates.

“That is where housing issues will be addressed or not addressed,” demographer Steve Murdock of Rice University said. “Hispanics are the key to this growth.”

And echo boomers – members of another group hit hard by the recession as they’ve struggled to start careers – will be the generation driving the next wave of household formation.

“In the next 10 years, the echo boomers are almost the entire story,” said Rolf Pendall, director of the Urban Institute’s Metropolitan Housing & Communities Policy Center…

Cisneros said a Hispanic affinity for owning a home may help moderate some of the drive toward renting. “Somewhere deep in our DNA as Latinos is homeownership,” Cisneros said.

Baby boomers, the group that’s long driven trends, still is doing so, but instead of creating McMansions, they will start to influence building of nursing homes.

I assume Cisneros, former secretary of Housing and Urban Development under Bill Clinton, means that Latinos have a cultural affinity for homeownership. Thus far, this has not happened so much in the United States: for example, in 2008 the homeownership rate for Latinos was 48.9% and 47.5% for blacks compared to 74.9%. However, in Mexico, the homeownership rate is between 80-90% (2004 figures here, 1999 figures here).

Add this to suggestions from some that Generation Y also wants new kinds of housing (previous posts here, here, and here) and it looks like there might be quite a bit of change in the American housing market in the future. Our current system isn’t too different in houses and layout than it was decades ago.

Forecast: US homeownership rate to hit low of 62% in 2015

One forecast suggests that homeownership rates in the United States will drop to a low in 2015 before rising by 2025:

All this could push home ownership down to levels not seen at least since before the Census began tracking this data in 1963. Home ownership soared to 70 percent in 2005, but it could fall to 62 percent by 2015, according to the number crunchers at John Burns Real Estate Consulting. They suggest that the effect of foreclosures drops home ownership 5.6 percent, and cyclical trends, like poor consumer confidence, tightening mortgage credit and the weak economy drop it 3 percent. Positive demographic trends would only offset that by 0.7 percent…

Burns believes home ownership will return by 2025 to around 67 percent, as previously foreclosed borrowers return to the housing market, cyclical trends improve and positive demographics start to carry more weight.

This is quite an extended process that first requires foreclosed and underwater loans to get off the books before the homebuyers turn the numbers again. It is interesting that there is little political discussion about the length of this process – does it benefit any current politician to be forthright about how long it might take to turn the housing market around? Do people care that much about homeownership while issues like jobs and debt are also concerns?

If the process does take this much time, it could also lead to a long-term reassessment of real estate. I doubt that people will no longer value owning a home or that homeownership will disappear from the cultural image of the American Dream as some have hinted. However, there is less of a chance it will be considered an investment and people will be more careful with their purchases, particularly paying attention to being able to pay for it even in rough patches.

Drop in US homeownership rate the greatest since the Great Depression

The title of this post is what the headline for this AP story should say – instead, the AP headline is “Census: Housing bust worst since Great Depression.” The problem with the headline is this: do people know what a “housing bust” is? Does this mean that the American housing market is in the worst shape that it has been since the Great Depression? Is the homeownership rate or are housing values at the same level as the Great Depression? Not necessarily. Here is what the story really is:

The American dream of homeownership has felt its biggest drop since the Great Depression, according to new 2010 census figures released Thursday.

The analysis by the Census Bureau found the homeownership rate fell to 65.1 percent last year. While that level remains the second highest decennial rate, analysts say the U.S. may never return to its mid-decade housing boom peak in which nearly 70 percent of occupied households were owned by their residents…

Nationwide, the homeownership rate fell to 65.1 percent – or 76 million occupied housing units that were owned by their residents – from 66.2 percent in 2000. That drop-off of 1.1 percentage points is the largest since 1940, when homeownership plummeted 4.2 percentage points during the Great Depression to a low of 43.6 percent.

So the percentage drop is what is important here: it fell from nearly 70 percent in the mid-2000s to 65.1 percent today. This is similar to the 4.2% drop during the Great Depression. But notice: the homeownership rate in 1940 was 43.6 percent while it is still above 65% today. Overall, we are ahead of the 1940 figures even though the homeownership drop suggests that this recent period has had a similar effect on homeownership as the Great Depression.

Another interesting piece of news from this Census data on homeownership:

Measured by race, the homeownership gap between whites and blacks is now at its widest since 1960, wiping out more than 40 years of gains.

This is not good. The homeownership rate for blacks and Latinos increased small amounts from 2000 to 2010 but the gap has widened. Perhaps the American Dream, at least the homeownership part, has never truly really been available to everyone.

Another article on declining homeownership rates

Bloomberg Businessweek highlights how American’s view of home ownership has changed in the last few years:

The most affordable real estate in a generation is failing to lure buyers as Americans like Pauli sour on the idea of home ownership. At the end of 2010, the fourth year of the housing collapse, the share of people who said a home was a safe investment dropped to 64 percent from 70 percent in the first quarter. The December figure was the lowest in a survey that goes back to 2003, when it was 83 percent.

“The magnitude of the housing crash caused permanent changes in the way some people view home ownership,” said Michael Lea, a finance professor at San Diego State University. “Even as the economy improves, there are some who will never buy a home because their confidence in real estate is gone.”…

“If we’ve learned anything from this mess, it’s that housing is not a risk-free investment,” said Michelle Meyer, a senior economist at Bank of America Merrill Lynch Global Research in New York. “Everyone knows someone underwater in their mortgage or struggling to sell a home.”…

The U.S. home ownership rate dropped to 66.5 percent in the fourth quarter, the lowest in more than a decade, according to the Census Department. The rate probably will retreat another percentage point by 2013, according to Meyer, of Bank of America Merrill Lynch, and Lea, the finance professor. That would put it back to a 1997 level.

“People will still aspire to own their own homes,” Lea said. “They’ll just be a lot more practical about it.”

This article tends to focus on the money side of things (housing as less of an investment, tighter credit, lots of people with underwater mortgages, a future with a reduced or no involvement from Fannie Mae and Freddie Mac, etc.) but I think the key (or exciting) information is in the last two paragraphs I cited above:

1. The homeownership rate has dipped but not a whole lot. Even in the housing boom of roughly the mid 1990s to the mid 2000s, the US homeownership rate increased from 63.6% in early 1993 to 69.2% in late 2004. So over an eleven year stretch of relative prosperity and increasing home values, homeownership rose about 6.5 percentage points. From this peak in late 2004 (69.2%), the homeownership rate had dropped to 66.5% for the fourth quarter in 2010. In a six year stretch, the rate had dropped 2.7%. If you look at the historical data since 1965 (all of these figures are from an Excel table on the Census website – Table 14 on this page), before the 1990s, the homeownership rate moved fairly slowly either up or down. Perhaps what is not so unusual about homeownership is not that it has fallen in recent years but rather that it rose so much between 1993 to 2004.

2. Additionally, this is all tied to American aspirations: do they still aspire to own their own home? While this article (and many others) highlight how this might now be more difficult, this key part of the American Dream still seems to be intact. Even if future neighborhoods or suburbs look different (like this article suggests they might), the interest in owning one’s property still appears to be high. While there is no guarantee that more and more Americans will be able to own their own homes (how high might the American homeownership rate realistically go anyway?), it will likely take more than this what has happened in this particular economic crisis to cast a new vision of American fulfillment that doesn’t include a single-family home or space.

Homeownership rates back to 1999 levels

With the economic and housing troubles of the last few years, the homeownership rate in the United States is now down to 66.9%, the lowest level seen since 1999:

The percentage of households that owned their homes was unchanged at 66.9 percent in the July-September quarter, the Census Bureau said Tuesday. That’s the same as the April-June quarter.

The last time the rate was lower was in 1999, when the rate was 66.7 percent.

The nation’s homeownership rate was around 64 percent from 1985 through 1995. It then rose dramatically during the Clinton and Bush administrations, hitting a peak of more than 69 percent in 2004 at the height of the housing boom.

The economic boom played a large role but both Clinton and Bush pushed homeownership across the board as an unmitigated good for America and its citizens. How will current politicians respond regarding homeownership? We received a number of pieces of campaign literature in the mail this election season where both Republicans and Democrats talked about helping to save homes. Will owning a home be seen as something that helps uphold the American dream or will the rhetoric change?