Majority of Home Buyers Expected to be Hispanics, African-Americans, and Other Minorities

A very significant change in homebuyer demographics is expected during the next 20 years. Will it also have a significant effect on home values? The January 2021 Urban Institute report (The Future of Headship and Homeownership) finds:

Net growth in the number of homeowners from 2020 to 2040 will be entirely among people of color, especially Hispanic homeowners. Between 2020 and 2040, there will be 6.9 million net new homeowner households, a 9 percent increase. Hispanic homeowners will grow by 4.8 million, homeowners of other races (mostly Asian homeowners) will grow by 2.7 million, and Black homeowners will grow by 1.2 million. The total number of white homeowners will decline by 1.8 million.”

Latin Americans

If this proves to be true, it will require changes for the entire residential real estate industry. Just to begin with, what implications will it have for future home values? Many studies conducted over the past several decades continue to show that neighborhood racial composition still drives unequal home values. Many laws have been in effect for over 50 years that prohibit real estate professionals from explicitly using race when evaluating a property’s value. But change has been very slow.

Appraisers continued to value homes in white neighborhoods as worth more than similar homes in Black and Latino communities. Research shows that since 1980, in similar social-economic neighborhoods, dominantly white home values have appreciated an average of $200,000 more than in neighborhoods of color. If this continues, home value appreciation will be suppressed as white homeownership declines and minority ownership increases.

One fact supporting the probability that Hispanic homeownership will increase is that the Department of Housing and Urban Development (HUD) announced in January that it is extending eligibility for FHA mortgages to immigrants under the Deferred Action for Childhood Arrivals (DACA) program. This means that “Dreamers” who are legally permitted to work in the U.S., are now eligible to apply for FHA-backed mortgages. Dreamers make up the age demographic most active in home purchases. DACA participants include undocumented immigrants that arrived in the U.S. before their 16th birthday and were less than 31 years old when the program was established on June 15, 2012. In addition to 4.8 million new homeowners, the number of Hispanic rental households is expected to increase by 3.8 million.

More changes will be needed in the real estate lending industry. According to a MarketWatch analysis of Home Mortgage Disclosure Act data, African-Americans make up 13% of the country’s population, but they only received 6% of the mortgages that were originated in 2016. Furthermore, as a result of the Great Depression, lending requirements became much more stringent and that disproportionately causes even fewer black and Latino mortgage applicants to be approved. Less access to loans is likely to further obstruct price increases.

Homeownership trends, demographics, and lending policies are at a crossroads. Without meaningful change, the long steep climb in home value appreciation can be expected to slow significantly. As the largest asset owned by the vast majority of Americans, this endangers wealth accumulation.

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Author bio: Brian Kline has been investing in real estate for more than 35 years and writing about real estate investing for 12 years. He also draws upon 30 plus years of business experience including 12 years as a manager at Boeing Aircraft Company. Brian currently lives at Lake Cushman, Washington. A vacation destination, near a national and the Pacific Ocean.

Source: realtybiznews.com

Hispanic households to grow the most over next 20 years

In a release on Thursday, the Urban Institute projected the future headship rate — the share of adults who are the heads of households — and the homeownership rate — the share of household heads who own their homes — through 2040.

Per Laurie Goodman, Urban Institute vice president of housing finance policy, policymakers and thought leaders need to understand the trajectory of the homeownership rate — where it has been, where it is going, who it has benefitted, and who it has left behind.

The analysis found that household growth will be weak over the next two decades. After a 7.3 million average growth from 2010 through 2020, UI projects 8.5 million in growth from 2020 through 2030 and 7.6 million in growth from 2030 to 2040.

“This decline is the result of slowing U.S population growth and lower headship rates for most age groups,” Goodman said.

They also project that all of household net growth will be from households of color, and a majority of that growth, in turn, will be from senior citizens.


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Between 2020 and 2040, Hispanic households will grow by 8.6 million, households of other races (mostly Asian households) will grow by 4.8 million, and Black households will grow by 3.4 million. White households will decline by 0.6 million. Of the projected 16.1 million net new households formed in those 20 years, 13.8 million will be headed by someone over 65.

However, the homeownership rate will also continue to fall for every age group.

“People who were 25 to 44 years old in 2010 are the most affected age group, as the Great Financial Crisis hindered their ability to become or remain owners,” Goodman said. “The aging of the U.S. population will cushion the drop in the overall homeownership rate because older households have higher homeownership rates.”

In all, Goodman projects the overall homeownership rate will fall from 65% in 2020 to 62% by 2040.

Specifically, the Urban Institute projects the decline in the homeownership rate will be particularly pronounced for Black households headed by 45-to 74-year-olds. 

“If current policies stay the same, the Black homeownership rate will fall well below the rate of previous generations at the same age and result in an unprecedented number of Black renters over 65,” Goodman said. “We project elderly Black renters will more than double from 1.3 million in 2020 to 2.6 million in 2040.”

Between 2020 and 2040, there will be 6.9 million net new homeowner households, a 9% increase, per UI. Hispanic homeowners will grow by 4.8 million, homeowners of other races (mostly Asian homeowners) will grow by 2.7 million, and Black homeowners will grow by 1.2 million. The total number of white homeowners will decline by 1.8 million.

Finally, renter growth will be more than twice the pace of homeowner growth from 2020 to 2040. In the 20 year span, there will be 9.3 million net new renter households, a 21% increase, per the report. Hispanic renters will grow by 3.8 million, Black renters by 2.2 million, renters of other unspecified races (including Asian renters) by 2.1 million, and white renters by 1.2 million. 

Goodman said UI is already focusing on policies directly impacting seniors citizens and the racial homeownership gap.

“To prepare for the surge in renters and coming demographic changes, we need to increase the supply of affordable homes and better tailor these homes to the needs of future owners and renters through more flexible zoning and land use regulations,” she said.

“To decrease the enormous racial homeownership gap, we need to take concerted action to improve and expand financial education and homeownership preparation, and increase the visibility, access, and types of down payment assistance programs.”

Goodman added that re-examining the qualifications for borrowers for mortgages and revamping the process to more precisely assess creditworthiness will also decrease the racial homeownership gap.

“We need to implement programs that sustain homeownership for borrowers with less wealth — especially people of color,” she said.

Source: housingwire.com