LOS ANGELES – Despite fundamental innovation in mortgage instruments, expansion of the secondary market, the lowest mortgage rates in 40 years and a host of industry and policy efforts to promote minority homeownership, research from the University of Southern California Lusk Center for Real Estate (www.usc.edu/lusk) provides evidence of sizeable and persistent racial homeownership gaps. The research, conducted by Lusk Center director Stuart Gabriel, Ph.D., and Stuart Rosenthal, Ph.D., of Syracuse University’s Center for Policy Research analyzed housing data over a 20-year period ending in 2001.
Gabriel’s and Rosenthal’s study showed that a rise in homeownership rates among households since the 1980s was caused largely by improvement in household income. At the same time, substantial gaps in homeownership rates between whites and minorities persisted, averaging roughly 26 percentage points for blacks and 28 points for Hispanics. In the second quarter of 2004, homeownership rates reached 69 percent nationwide, with 76 percent for non-Hispanic whites, 50 percent for blacks and 47 percent for Hispanics.
“Homeownership increases are driven by such factors as household income, age, size of the household, full-time work, marriage and inheritance,” Gabriel pointed out. He added that there remains a need to boost minority homeownership not only because it’s often a wealth generator, but also because research has shown that homeownership can help to revitalize neighborhoods by reducing crime and blight, increasing price appreciation and improving outcomes for children. “Clearly, the benefits of homeownership can extend well beyond the build-up of equity to help revitalize communities,” explained Gabriel.
The study also found that blacks and Hispanics are saving more to purchase a home, suggesting that minority households view homeownership as a far more viable option today than in the past.
Gabriel’s research also has pointed to a number of factors that need to be addressed to increase minority homeownership. First, there is a need to assure minorities get better access to credit. “We also need to explore the pricing of loans originated among minority and underserved communities,” Gabriel suggested. “In fact, our research has shown borrowers with lower credit scores are less likely to prepay mortgages, resulting in higher returns for investors in these mortgages.” At the same time, lenders should continue to expand the set of factors they use to score the credit worthiness of underserved borrowers by using such indicators as payments for rent and utilities and length of employment. Also, since minority households are more inclined to purchase a home in urban neighborhoods, there’s a greater need for ‘closer-in’ housing, whether that means urban in-fill new construction or revitalization of existing housing stock, to boost homeownership in the urban core.
Gabriel presented his findings at a recent meeting of the American Real Estate and Urban Economics Association. The Gabriel/Rosenthal study, “Homeownership in the 1980s and 1990s: Aggregate Trends and Racial Gaps,” has been accepted for publication in the Journal of Urban Economics.