Gap between Black and white renting families who could afford a mortgage narrowed significantly during the pandemic

Study underscores that factors not related to income are keeping the Black-white homeownership gap wide

• Racial mortgage affordability gap shrunk by more than a third since 2012
• Among all races, renting families able to afford a mortgage dropped by nearly half from 2021 to 2022
• White households own homes at a 73% rate, while Black households own at 44%, with over half of the top 50 metros showing a gap of 30 points or more

SEATTLE, Feb. 23, 2024 /PRNewswire/ -- The gap between the share of Black and white renting families that could comfortably afford a mortgage payment shrunk significantly during the pandemic, a new Zillow® report shows. Despite this progress, a notable homeownership gap and disproportionate rate of mortgage denials persists, suggesting that other barriers not related to income are also impeding Black families' access to homeownership.

In 2022, approximately 38.6% of 138 million U.S. families¹ were not homeowners, according to the American Community Survey. Among those, more than 6.3 million families were considered "income mortgage-ready,"² meaning their income would allow for paying a typical mortgage payment in their area without being cost burdened. 

About 7.8% of Black non-home owning families were income-ready for a mortgage, compared to 12.5% of white families — a gap of 4.7 percentage points. While significant, the gap shrunk by more than one-third since 2012, when it stood at 7.9 percentage points.

"Despite the significant decline in mortgage affordability in the past two years, millions of families who do not own their home have the means to afford the largest share of a homeowner's cost — the mortgage," said Zillow Senior Economist Orphe Divounguy. "While some families may choose to rent, many are simply constrained. It's crucial to recognize the existence of additional barriers beyond monthly cost, including access to funds for a down payment and closing costs — as well as other barriers that significantly contribute to mortgage denials, like insufficient credit scores and lack of access to credit. These barriers especially impact people of color."

Still, among all races, the number of renting families able to afford a mortgage dropped to 6.3 million in 2022 from 12.9 million in 2021, as mortgage rates doubled. While higher mortgage rates and higher prices affected everyone, the median family income of renters rose more for Blacks than for whites since 2012. Regions where Black family incomes rose most generally experienced a greater decline in the racial mortgage readiness gap during the 2012 to 2022 period.

Detroit has the highest share (13.3%) of Black renting families earning enough income to comfortably afford a mortgage, followed by Memphis (12.8%), St. Louis (12.0%), Houston (11.6%) and Cleveland (11.2%). While home values are relatively lower in those communities and more Black families could afford the typical mortgage payment, access to homeownership remains a challenge.

Racial disparities in home values, homeownership rates and credit security
Even though the incomes of Black renting families rose faster during the pandemic, significant disparities persist in homeownership rates and home values between Black and white Americans. Nationally, white households owned homes at a much higher rate (73%) than Black households (44%), and the gap exceeded 30 percentage points in more than half of the country's 50 largest metros in 2022.

Compounding the issue, the typical home owned by a white family is still worth far more than the typical home owned by a Black family. Although there has been incremental progress in narrowing the home value gap, it still exceeds 10 percentage points in 42 of the top 50 metro areas.

Discriminatory lending practices and higher denial rates for Black mortgage applicants, compounded by credit history issues, also pose challenges to housing equity. In 2022, Black applicants saw a 146% higher mortgage loan denial rate compared to white applicants, potentially hindering future generational wealth transfer. Credit history is the most common reason cited for these denials.

Initiatives aimed at things like enhancing access to down payment assistance and credit-building opportunities as well as implementing reforms in zoning, together with efforts to construct and preserve affordable housing in thriving communities, are vital.

Housing Inequalities by Race

About Zillow Group:
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¹ For the purpose of this analysis, "family" refers to a related group within a household, as identified in the American Community Survey.

² This assumes a family can only afford a 3% down payment at the highest mortgage rate recorded each year based on applications submitted to the Freddie Mac from lenders across the country. A lower down payment implies higher monthly mortgage payments, raising the threshold income needed to be considered mortgage ready in this analysis.

SOURCE Zillow