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NAR’s 5-Point Plan To Help Increase African-American Homeownership – Even with the COVID-19 pandemic, interest in home buying is strong as reflected in the surge in mortgage applications to buy a home. According to the Mortgage Bankers Association, mortgage applications to buy a home spiked 4% last week to an 11-year high.
The jump in demand was likely fueled by falling mortgage rates. The fixed 30-year rate fell to 3.3%, the lowest in the MBA survey’s history. That being said, however, there isn’t enough supply to meet demand and significant growth in new home construction is needed.
Before the pandemic hit, the U.S. faced a housing shortage due to multiple years of underproduction of new homes. The housing shortage has intensified as we enter into the second half of 2020.
As a result, home prices are likely to rise, making ownership opportunities for first-time buyers, including minorities, that much more challenging. More homes need to built to offset demand and keep home prices from escalating.
The homeownership rate for African-American households is now at 44% – compared with an overall U.S. rate of 65.3%. A year ago, it fell to 40.6%, which was the smallest share recorded for Black households since the 1950 decennial Census when it was at 34.5%.
With much of the nation’s attention currently focused on fighting for racial equality, particularly as it relates to African-Americans, the following five-point plan outlined by the National Association of REALTORs® would increase the number of Black homeowners.
NAR Chief Economist Lawrence Yun stated that “given the events of the recent weeks, it highlighted the progress, or lack of progress, among the African-American community,” adding that the access to homeownership is a critical source for building financial wealth.
NAR’s five-point plan to help increase minority homeownership, especially for African Americans, includes:
1). Build more homes to increase supply: The lack of housing supply makes converting from renting to owning very difficult. The lack of viable purchase options and resulting competition rapidly push up home prices, precluding some potential first-time buyers from entering the market.
Yun stated that since the pool of potential first-time buyers is higher in the minority population if the industry can increase supply, it could help minority households lock in a home.
2). Build more homes in Opportunity Zones: NAR strongly supports Opportunity Zones as a means by which to invest in the revitalization of economically-distressed areas. Yun posed the question: “Since the industry needs to build so many homes, why not build or sell homes in the Opportunity Zones to help revive some of those areas?”
He added that there is even a tax break in certain geographically defined opportunity zones for developers to go in and build homes, helping the revitalization of economically-distressed areas.
3). Increase access to down payment assistance: Saving for a down payment can be the biggest hurdle for renters wanting to become homeowners. In recent years, a growing number of first-time buyers received help from family members with their down payments.
However, due to historical gaps in accessing and accumulating wealth, it’s much more difficult for African-Americans to obtain substantial financial assistance from family members. Therefore, increased access to federal down payment assistance based on a certain income threshold is vital, particularly for African-Americans.
4). Strengthen FHA’s loan program: FHA loans have been an important source of financing for first-time buyers and minority households. Shifting federal dollars to strengthen the FHA program could lower mortgage insurance premiums and monthly mortgage payments.
Yun explained that many minority households are able to become first-time buyers primarily due to FHA mortgages, making the product an important source of financing.
5). Expand alternative credit scoring models: NAR outlined that expanding credit scoring models to include rent and utility payments would help Black Americans boost their credit score. Yun also shared an estimate from the National Association of Real Estate Brokers that alternative credit scoring would open up buying to around 115,000 Black Americans per year.
Yun added that the industry needs to make sure that it doesn’t make the same mistakes it did in the past, especially 10 years ago with the subprime lending debacle.
The homeownership rate for African-American households fell more than seven percentage points from 47.8% at the start of the financial crisis to last summer’s record low after some predatory lenders focused on minority communities.
“We need to ensure successful homeownership, not just temporary homeownership,” said Yun.
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29630 Orchard Lake Rd.
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License #314578
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