Discrimination harms homeownership

Some facts about the housing market:

• homeowners have more wealth than non-homeowners; and
• white (non-Hispanic) households have a higher homeownership rate than non-white households.
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Therefore, it’s no surprise that non-white households have less wealth than white households. In fact, a recent Zillow analysis reports the average white family’s wealth equals $114,785 as of 2011. The average black family’s wealth equals a fraction of that, just $24,792. Using this data, Zillow found that if black families became homeowners at the same rate as white families, their average wealth would rise to $32,871.

In 2011, the homeownership rate for white households was 72%, compared with a 52% homeownership rate for black households. Zillow claims that six percentage points of the 20 separating the two rates can be accounted for by socioeconomic factors (i.e. the average income of black households is less than white households). This still leaves a homeownership gap of 14 percentage points, unexplained by income, savings or household characteristics.

So aside from socioeconomic factors, what can account for the difference in homeownership between racial groups?

The sad fact is, a large, highly documented system of housing discrimination exists, keeping homeownership rates low for racial minorities, particularly black and Hispanic families. Discrimination comes from three sides in the process of buying and keeping a home:

• intentional mortgage discrimination;
• implicit (and sometimes explicit) discrimination from real estate professionals; and
• a higher likelihood of default and foreclosure.
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The many forms of discrimination

In 2012, Bank of America and Countrywide agreed to pay $335 million in response to discriminatory mortgage lending, which adversely affected 200,000 people nationwide.

While certainly not the first instance of mortgage discrimination, this was the largest proven act of racial discrimination in the mortgage industry. Countrywide charged minority families higher fees and steered them into subprime mortgages, even though minority homebuyers’ credit histories were similar to the credit histories of white applicants. As a result, many of these homebuyers eventually defaulted and lost their homes to foreclosure following the 2008 recession.

Beyond mortgage discrimination, real estate professionals act out a more insidious form of racial discrimination. According to a decades-long study by the Department of Housing and Urban Development (HUD), implicit racial discrimination ensures minority homebuyers (and renters) are:

• shown fewer properties; and
• given less information by real estate agents.
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Explicit racial discrimination still exists in the real estate profession, though less so today. In these more rare cases, real estate agents refuse outright to show properties or take applications from racial minority groups.

Finally, black homeowners (and likely other racial minorities) are more likely than White homeowners to lose their home during a recession.

Aside from being steered into bad mortgage deals, as cited in the Bank of America/Countrywide case, black homeowners are statistically more likely to lose their job during a recession. When this happens, black workers often have less money set aside in savings to tide them over until they can find another job (partly due to black and other racial minority workers having lower average incomes than white workers to start, even when working in the same field). Therefore, black homeowners are often the first to lose their homes during a recession — 45% more likely than white homeowners in fact, according to a Cornell University Study, as cited in Slate.

For instance, due to the 2008 recession, the average wealth of black households fell by half. The average homeownership rate in 2014 was:

• 71% for White non-Hispanic households;
• 41% for Black households;
• 45% for Hispanic or Latino households; and
• 58% for Asian-American households, according to the U.S. Census Bureau.

All of this discrimination contributes to negative housing attitudes on behalf of members of racial minority groups.

Real estate agents can make a difference

While the relatively low homeownership rate for racial minorities is partly due to socioeconomic circumstances and homeownership attitudes, the Zillow analysis shows most of it is due to outside influences, such as housing discrimination. Therefore, the homeownership rates of racial minorities really ought to be higher than they are presently.

In turn, the housing market has the opportunity to benefit from more qualified homebuyers encouraged to enter the market. The potential benefits are seen across California, as lower homeownership rates exist in areas with higher racial minority populations. But what can real estate professionals do to encourage more households to become homeowners?

While real estate agents can’t do a thing about the third aspect of housing discrimination (what happens during a recession), they can be watchful of their own actions, and that of lenders.

For all clients, real estate agents need to be vigilant for signs of predatory lending. Agents can make sure all clients are fully aware of the details of the mortgage they are agreeing to pay back. After all, most homebuyers will only participate in the mortgage process a handful of times in their lifetime at most, and they need guidance to make sure they aren’t taken advantage of by a predatory lender. The Consumer Financial Protection Bureau’s (CFPB’s) mortgage shopping tools are a good place to direct homebuyers for homebuying and mortgage guidance.

Finally, real estate professionals need to maintain high anti-discrimination standards by following the laws set out in California’s Unruh Civil Rights Act. To ensure brokers, agents, mortgage loan originators (MLOs) and landlords don’t violate non-discrimination laws — even unintentionally — professionals need to:

• ask the same questions of all applicants — for landlords, feel free to ask about matters that will actually impact tenancy like pets or water beds, but never ask about a protected status like race, religion, sexual orientation, pregnancy, etc.;
• keep records of client interactions — while a client is unlikely to pursue legal charges for discrimination, it’s best practice for an agent to keep track of all client interactions and property tours for several reasons, including identifying any unintentional biases; and
• when in doubt, contact a local fair housing expert for advice — find a list of experts at HUD’s website.