Present disparities in homeownership by race and ethnicity help beget future disparities in homeownership by race and ethnicity

Differences in homeownership now contribute to differences later. Article one:

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American home buyers are older, whiter and wealthier than at any time in recent memory, with first-time buyers accounting for the smallest share of the market in 41 years, the National Association of Realtors found in its annual profile of home buyers and sellers.

White buyers accounted for 88 percent of home sales during the survey period, up from 82 percent during the same period a year earlier, reaching the highest level in 25 years, according to the association’s findings.

The new findings add weight to a hard truth that many young families have experienced as they struggle to save money to buy a home, competing in the most brutally competitive housing market in modern history: They have been elbowed out by buyers who have something they might never have — all cash…

“This is a feedback mechanism that can potentially supercharge wealth inequality in our economy,” said Austin Clemens, the director of economic measurement policy at the Washington Center for Equitable Growth, who studies housing inequities. “It’s hitting younger people, it’s hitting lower income people. And we also find that this is hitting Hispanic and Black households especially hard.”

Article two:

Though loan denials for both Black and white applicants have slowed since the 2008 financial crisis, the gap in denial rates for Black and white people applying for home loans has widened significantly. Today, 15 percent of Black applicants are denied mortgages while 6 percent of white applicants are denied the home loans, according to a report by the National Association of Real Estate Brokers, an advocacy organization for Black real estate professionals.

The housing market remains persistently and disproportionately challenging for Black prospective home buyers, the report’s writers say, although Black homeownership has been inching forward since the passage of the 1968 Fair Housing Act, which made it illegal to discriminate based on race or religion in all aspects of home sales and rentals. The full report will be released on Wednesday.

Nearly 45 percent of Black households own their homes, compared with more than 74 percent of white households. But in 1970, the gap in homeownership between Black and white households was about 24 percent. Today, it is 30 percent.

The disparity in homeownership rates, as well as widespread appraisal discrimination, are compounding the massive income gap between Black and white households and thwarting Black Americans’ efforts to create generational wealth, the report notes. In 2020, the average white family held 12 times the wealth of the average Black family, and home equity is the largest source of wealth for both Black and white households, the report says.

If a potential buyer cannot purchase now, this has ramifications for years. And if someone could not purchase decades ago, this has implications right now.

Given the American emphasis on homeownership, even by presidents, I am a little surprised there has been limited public conversation about more assistance for first-time buyers. Are there ways on a broader scale to help people purchase a first home that helps increase equity later? With starter homes in low supply, help is needed. And addressing disparities now could help close gaps later.

Also noting here: good homes are needed even if the primary goal of owning a home is not to generate wealth, a relatively recent shift in how Americans view dwellings. Where people live is tied to all sorts of outcomes and experiences.

The long-term consequences for those benefiting from buying a home during a recession

Thinking more about yesterday’s post on cooling home values in certain housing markets, how many people benefit from the lower prices? The typical emphasis in such economic times is to note the difficulty of buying a home when interest rates are higher and there is economic uncertainty.

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But, lower prices means some might be able to buy when they could not otherwise. The hottest markets in good economic times have high prices and lots of competition. Even as borrowing money is harder in a recession, prices can be lower and the competition might not be as stiff.

Some people are still buying and selling homes during economic downturns. This leads to a long-term question: are those who buy during a recession more or less likely to hold tightly to the idea of a home as an investment? Is buying at the height of the market – famously, such as right before the housing bubble burst in the late 2000s – tied to a deeper focus on property values and a strong return on investment? Or, because a home purchased during a recession might emphasize scarcity and economic uncertainty, might this lead to more concerns about property values?

The housing market giveth, the housing market taketh away

Where are housing prices dropping the fastest in the United States? They tend to be places where prices were zooming up not long ago:

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Top 10 cities where housing markets are cooling the fastest in 2022

  1. Seattle, WA
  2. Las Vegas, NV
  3. San Jose, CA
  4. San Diego, CA
  5. Sacramento, CA and Denver, CO (tie)
  6. Phoenix, AZ
  7. Oakland, CA
  8. North Port, FL
  9. Tacoma, WA

This raises multiple questions:

  1. While housing values are going down, how long before they stabilize and head back up? After all, these are places with higher demand and rising prices over time. At least, that is what a lot of homeowners are planning on.
  2. How are residents of these places feeling? American property owners like it when property values are going up, even if they are not ready to sell. When prices go down, I assume they are not feeling as good. (This could be true even if housing values today are higher than they were not long ago; the immediate feeling of loss is strong.)
  3. Is a local market with higher highs and lower lows in housing prices one where more growth is happening? Looking at the list above, it would appear these are fairly popular places with a steady demand for housing. The alternative to the yo-yoing in the housing market is a market where prices do not rise much or lose much. Such markets also exist in the United States, but they are less desirable.

Compared to homeowners, renters stay in a residence for a shorter time

I recently read how long homeowners and renters stay in a residence:

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Redfin reported that in 2021, the typical U.S. home changed hands every 13.2 years. According to ResidentRated, a renter satisfaction survey company, a typical renter will stay in a multi-family building for 27.5 months, or just over two years.

How might this be interpreted? Here is what came right before the data:

Although the rules have been relaxed and tightened over the years, the secondary mortgage market in the U.S. requires condo buildings to maintain a certain level of owner-occupied units in order to fund mortgages for buyers purchasing in those properties. If buyers can’t get mortgages easily for a condo unit, they will look elsewhere. That can depress prices for the entire property. (Over the years, the percentage of allowable units that may be rented has fluctuated from 50 to 80%. Fannie Mae’s current rate of allowed rentals in a condo building is 50%. )

Also, renters may be wonderful people but they don’t always make great neighbors. They may not take care of the overall property as carefully as a unit owner would, and the length of their tenancy tends to be shorter than the amount of time a unit owner lives in a home they own.

Are renters less desirable because too many rental units can affect property values and renters may not care for the residence and they do not stay as long? Having seen such arguments in my research on suburban settings, there are both perceptions about renters and systems regarding properties that contribute to the overall preference for homeownership. Renting may be necessary for some and/or for a time and/or in particular markets, but Americans overall privilege owners who in contrast to the sentiments above presumably stay longer, care more for their properties, and promote higher property values.

If renting is going to be more common in the United States – homeownership is down or stable in recent years, it is difficult to purchase homes or units in many markets – then it will be interesting to see if these ideas about renters change or if it only reinforces decades-long ideas.

Rising property values and “passive income, which is the real American dream”

Why do so many homeowners care about protecting their property values? While recently reading about social class and Hollywood, I found this observation:

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That passive income, which is the real American dream, is no longer something that the actual artists—not just actors but writers and directors and everyone else who ever made a dime off of residuals—involved in the entertainment business get to enjoy.

The context here involves the actors and others involved with long-popular television shows that could reap the financial benefits for decades.

Isn’t this passive income also what American homeowners in the early 21st century expect when they purchase a residence? Scholars have noted the shift to Americans viewing their homes as a positive investment. Instead of needing a home for shelter and enjoying that residence while there, homes and residences are now supposed to make money for their owners. In this arrangement, property owners are not expected to be completely passive; they should maintain their property or possibly even improve it. In return, their property values go up and they can cash out in the future. A loss is very undesirable and even staying roughly at the same value over time is not much help given expenses. A nice profit requires a decent uptick in value. Such a profit can help owners climb the economic ladder, have a comfortable retirement, and pass along wealth and advantages to children and family.

This can help explain why so many homeowners fight against perceived threats to their property values. People want to change the use of land or alter the neighborhood in ways that might limit the rise of property values. It is a threat to passive income. (Whether those changes to the neighborhood and/or community actually lower property values is another story.)

What children learn from HGTV #3: Houses are symbols of success and making it

In watching HGTV with children and studying suburbs and housing, I have several ideas of what kids learn while watching the network’s programming.

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Put together the ideas in the previous two posts – homes involve emotionally satisfying arcs and they pay off financially in the end – and add decades-long American ideology and houses are symbols of success and making it. The house, typically a single-family home on HGTV, is a visible, tangible monument that the owner is successful. Residents and show hosts talk about how the house symbolizes all of the struggle and work of a family. They talk about passing down a legacy to kids. They usually do not come out an say it but the home and its exterior provide a positive impression to neighbors and those passing by about the status of the residents.

Homeownership is celebrated on HGTV. An attractive house that meets the needs of the residents and broadcasts a message of success to others is the ideal. Almost no one wants to rent or live long-term with family or friends. Almost everyone is trying to move up to a better and/or more attractive home. The goal is to acquire one’s own home which provides well-being and financial security.

Ultimately, HGTV helps perpetuate homeownership and its link with the American Dream in the way it presents houses and what they are for. The people on the network find success in acquiring and improving homes and almost nothing else is discussed. Kids watching HGTV see that people need to acquire and/or improve a house to be a successful adult.

What children learn from HGTV #2: Houses pay off financially

In watching HGTV with children and studying suburbs and housing, I have several ideas of what kids learn while watching the network’s programming.

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In addition to the upbeat emotions on HGTV, the network relentlessly suggests houses are worth the financial investment. Numerous shows discuss how much money is involved, whether that is in the purchase price or the profit or equity made in repairing a home or the costs to particular changes. These are often not small sums; budgets are usually in the tens of thousands or more and few characters discuss how they have such money to spend.

But, the big sums of money are worth it in the end because homes are an important investment. Sure, they are to be enjoyed – and the reveals at the end of many HGTV episodes are full of positivity – but the money may be even more important. Everyone has spent a lot of money on these homes and they are worth it because they will be worth even more in the future.

HGTV often embodies the shift in the United States from homes as important centers of family life to financial investments. The money to be gained by owning or renovating a home is never far away on HGTV.

How much land or how many homes should one actor be allowed to own?

A recent fact check highlighted how much property several American actors owned:

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“Bill Gates is buying up the majority of American farmland and BlackRock is buying the majority of single family houses but I’m supposed to believe the biggest threat to us is Elon Musk buying Twitter?,” read a Twitter post that was liked or shared more than 250,000 times.

But Gates doesn’t own more than 50% of U.S. farmland, according to The Associated Press. Even with recent purchases, he owns less than 1% of the nation’s farmland.

Gates, with 269,000 acres, is considered the largest private owner of farmland in the country. But his share is a small percentage of the nearly 900 million acres of U.S. farmland, according to the Department of Agriculture

Also, BlackRock does not own a majority of U.S. single-family homes, the AP said.

How much property ownership is too much? Putting the amount of land or property into percentages is one way to think about it. Gates owns less than 1% of the farmland, BlackRock owns under 50% of the homes. The first figure suggests Gates barely owns anything while the second number is not a great one to note since I suspect owning 49% would not assuage those who retweeted this (and the likely figure is way under 10%).

Putting the ownership in absolute numbers might make a different argument. Gates owns 269,000 acres. That sounds like a lot, even in a big country in the United States. Or, if someone said BlackRock owns 60,000 homes, that would sound like a lot, even in a country with many more homes than that.

But, before we decide what numbers to use, we have to know what the concern is: should someone own 1% of the farmland? Should a company own tens of thousands of homes? The numbers can help illuminate the situation but they cannot answer the moral and ethical questions of just how much should one person or organization own? Using big or shocking numbers (even if they are incorrect) to suggest people should pay attention to a particular social problem is not new.

Numbers on the reduced inventory of starter homes in the United States

I have noted the decline of starter homes in multiple posts (examples here and here). Here is recent data from the National Association of Home Builders and the National Association of Realtors about this decline:

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Homes ranging in price from $100,000 to $250,000, the typical cost for an entry-level home, have seen nearly a 28% decrease in inventory from a year ago, says the National Association of Realtors.

And smaller homes are also in short supply. In 1999, 37% of newly-built single-family homes were smaller than 1,800 square feet. By 2020, that share had fallen to 25%, Dietz said.

In comparison, in 1999, 66% of newly-built single-family homes were smaller than 2,400 square feet while in 2020, that share had fallen to 57%.

These are two very important factors for getting into purchasing a home. A lower price means a smaller down payment and mortgage is needed. Smaller homes are cheaper because they have fewer square feet and cost less to construct.

And without this ability to enter the housing market, it will take potential homebuyers longer to enter, if they can enter at all. This precludes them from building housing equity and stepping up to larger or more expensive residences in the future. It limits the ability of people to pursue homeownership, a goal many Americans have.

Tackling both price and housing size will be difficult in many markets where developers, builders, and those in the real estate industry can get more. Yet, here is an opportunity to appeal to an important sector of potential homeowners if solutions can be put into practice.

Looking to global examples to address housing crunches in expensive cities

Housing is a very difficult issue to address at the national level. Can the United States look to examples abroad?

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Some suggest that Japan is the model to follow. There, rental prices have largely remained flat over the last 25 years, according to data from the country’s statistics bureau. The reason is that the government controls zoning nationally and is more open to development in the number of houses it allows to be built. Just over a third of Japanese citizens rent the homes they live in, protected by a 1991 law called the Act on Land and Building Leases, which makes it difficult for landlords to end leases or prevent a tenant from extending their rental contract…

So where else should we be looking, if not to Japan, for the model to fix the broken housing market in large parts of the west? One option is Singapore, where public housing is built in specially designed communities and sold to individuals with a 99-year lease below market value. Selling on that property is highly restricted to reduce profiteering, but it can happen after five years of ownership. Nearly four in five Singaporeans live in public-sector housing, according to official statistics. “Prices can never get beyond regular working families,” says Ronald. “They have this virtuous circle, and it makes it interesting to think about the role of regulating housing.”…

Until late January 2022, housing developments in Germany were subsidized by the government below market rates for the first five years after being built. “It means tens of thousands of units every year come onto the market, keeping rental prices lower and preventing scrambles to buy a property,” he says.

A similar model exists in Austria and Switzerland, where the split is roughly 55 to 45 percent (in favor of renting in Switzerland, and owning in Austria), compared to an average European home ownership rate of 70 percent. When you get to the Austrian capital, Vienna, the home ownership rate is just 7 percent.

All of these sound like they would require some fundamental changes to housing policy in the United States. This might include:

  1. A stronger national policy. This could be through programs available everywhere or guidelines that all states and municipalities have to follow.
  2. A stronger emphasis on renting.
  3. More government involvement in the construction of housing and/or longer-term government oversight of housing units.

None of these options would be particularly popular in the United States or easy to implement. Here are quick explanations why for each option above:

  1. A national policy would come at the expense of the power of more local governmental actors. With real estate being so much about location, could a national policy truly address all of the different situations? Americans expect to be able to control or at least provide input into the use of land around them.
  2. Homeownership is ingrained in American life as part of the attainment of the American Dream. This is ensconsed in zoning policy, supported by politicians and policies for decades, and Americans can be suspicious of renters compared to homeowners. Renting is more common in some areas compared to others but it is not seen as the ideal among Americans.
  3. Public housing has never been fully supported in the United States. The government’s active role in housing is often viewed as negative unless it is supporting homeownership.

This does not mean that the housing landscape in the United States cannot change. The need for more housing and more affordable housing is acute. But, changes will likely take decades and sustained efforts.