Seven Strategies to Boost Hispanic Homeownership
by Oriya Cohen, Lisette Vegas, and Sheryl Pardo
Although Hispanic homeownership rates increased last year for the third year in a row, the US still has a long way to go to narrow the homeownership gap between white and Hispanic households.
In 2017, only 46.2 percent of Hispanic households owned homes compared with 72.3 percent of white households. Both contributing to and resulting from this gap, the median household wealth of white families was eight times higher than that of Hispanic families. This gap is exacerbated by the rising cost of homeownership, especially in states with high Hispanic populations such as California and New York. Despite these challenges, the Hispanic population has been responsible for 59 percent of homeownership growth since 2012.
As the Hispanic population continues to grow, the economy’s long-term stability is increasingly intertwined with the success of Hispanic Americans. Implementing strategies to improve Hispanic homeownership is an investment in both the prosperity of Hispanic Americans and in the future of the nation’s economy.
The end of Hispanic Heritage Month provides a timely opportunity to highlight ways to boost Hispanic homeownership:
- Implement tactics to drive wage growth.
The Hispanic population is one of the nation’s fastest-growing populations. In 2017, the Hispanic population increased by 1.1 million people, and the census projects that by 2030, Hispanics will account for 20 percent of the US population.
But the rapid growth of Hispanic Americans has not been accompanied by similar growth in their wealth, income, or homeownership. In 2017, 49 percent of Hispanic households were considered low wealth. Expanding career pathways for Hispanic workers through postsecondary education and workforce training will get more Hispanic workers into higher-paying jobs.
- Support other forms of asset building.
Hispanics have fewer assets than their white counterparts, are less able to rely on parental wealth, and are more likely to accumulate debt—all of which increases the difficulty of investing in wealth-building assets such as a home.
Implementing asset-building programs like the Family Self-Sufficiency program, automatic savings in retirement plans, subsidies to promote emergency savings, and universal children’s savings accounts can help build a stable financial foundation for potential homeowners.
- Help improve credit scores.
Over the past decade, the median credit score for mortgages increased 20 points, and lenders are taking on less risk than reasonable standards suggest. With a younger median age and historically lower credit scores among borrowers, Hispanic households face significant barriers to accessing homeownership in a tight credit market.
Leveraging proven models for financial coaching and credit building can make financial products more accessible for a population that is increasingly invested in building good credit.
- Increase the housing supply.
In most housing markets, the supply of housing is not keeping up with demand. These impacts are especially pronounced in hot markets like the Bay Area and Boston. Without adequate supply, rents and home prices have skyrocketed, imposing a crippling cost burden on residents, especially for low-to-moderate-income (LMI) families. These highs costs stifle families’ ability to save for an investment and put homeownership out of reach.
Building more housing in undersupplied areas and preserving existing affordable housing will help drive prices down, reduce the housing cost burden, and make homeownership more affordable.
- Expand small-dollar mortgages.
In 2015, 14 percent of home sales were for $70,000 or less. These low-cost properties are in rural, suburban, and urban markets, but financial products to purchase these homes are lacking. In 2015, only one in four low-cost homes was financed with a traditional mortgage. Without accessible financial products, creditworthy LMI families struggle to compete with investors and cash buyers looking to create new rentals.
Creating new financial products for low-cost markets will help LMI families compete in the market and facilitate their transition from renting to owning.
- Leverage down payment assistance dollars.
Down payments are perceived to be a much bigger barrier to homeownership than they really are. More than two-thirds of renters say saving for a down payment is an obstacle to homeownership and 65 percent think they need to put at least 15 percent down. But the median down payment in the US in 2017 was 5 percent. While most low-down payment lending is done by the Federal Housing Administration, the Government Sponsored Enterprises have 3 percent down programs which have grown rapidly in recent years.
Federal and state low- and no-down payment assistance programs are available in every state and could benefit the nearly 50 percent of Hispanic households eligible for down payment assistance.
- Develop strategies to support the next generation of homeowners.
Hispanic millennials are one of the largest and fastest-growing populations. In 2016, the median age among Hispanics was 28 years old, and 61 percent of Hispanics were 35 or younger. Across the nation’s largest regions, nearly 30 percent of Hispanic millennials – or 4.6 million young adults – are mortgage ready. And as the population continues to grow, millennials are projected to make up the largest share of homeownership growth among Hispanics.
Developing targeted strategies to catalyze homeownership growth for current and future creditworthy Hispanic millennials will help build the next generation of homeowners.
*After significant thought and deliberation, the authors have decided to use the term “Hispanic” to refer to people of Latin American origin living in the United States. They have decided to employ this term to align with the language used by research sources throughout the post. However, the authors recognize that the term “Latinx” is more inclusive of way this group may self-identify. How Housing Matters strives to avoid language that is exclusive and will always attempt to explain the editorial rationale behind the labeling of certain groups.