Giving Black Wealth A Boost

Ease the path to home ownership

The New Economy's wealth-generating powers are certainly formidable. But one group that has been left behind is African Americans, whose average wealth is still estimated to be some 80% lower than that of white families.

Why this huge disparity? One factor getting a lot of attention lately is home ownership. Typically financed by mortgages, homes have long been the largest single asset of most families, who have benefited mightily from the appreciation of house prices over the years. But whereas two-thirds of all families are homeowners, black home ownership rates trail far behind those of whites.

Fortunately, the gap between the two has narrowed, report Raphael W. Bostic of the Federal Reserve Board and Brian J. Surette of the Federal Home Loan Mortgage Corp. In a recent study, they looked at families with household heads aged 22 to 60 and found that home ownership rose among all groups during the 1990s, but most sharply for blacks, Hispanics, and lower-income families.

While home ownership rose from 66.5% to 69.2% among white families, it jumped from 37.7% to 42.4% among black families. Since neither changes in income, employment, nor family structure seem to explain the greater gains by blacks, the researchers concluded that changes in the housing market itself were responsible. These included fair lending laws, shifts in mortgage processing and lending practices, and the overall decline in mortgage rates.

Can more be done to close the still- large home ownership gap? One tack is suggested by a recent study by Kerwin Kofi Charles of the University of Michigan and Erik Hurst of the University of Chicago. Tracking a sample of black and white renters from 1991 to 1996, they found that 30% of the whites had become homeowners by 1996, compared with just 12% of the blacks.

African Americans were rejected for mortgages more often than whites of similar creditworthiness, and that played a minor role in this pattern, the authors found. However, rejection rates weren't very high for either group. Instead, the critical factor seemed to be the fact that blacks were far less likely to apply for a mortgage in the first place.

Although some may have feared discriminatory treatment by lenders, the researchers think a lot more held back because they lacked family financing assistance. Only 8% of African American homebuyers had help from parents and other family members with their downpayments, they report, compared with 27% of white homebuyers.

In short, coming up with a downpayment seems to be the largest roadblock to home ownership by blacks. And that, write Charles and Hurst, "suggests that developing policies to relax such constraints could help close the black/white home ownership and wealth gaps."

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