Owning a home is no doubt part of the “American dream.” Yet less than two-thirds of Americans currently do. In fact, the overall rate of homeownership is hovering near a 50-year low, at 63.6%. For minorities, the rates are even lower, coming in at 56.8% (Asian), 46.6% (Hispanic), and 42.7% (African American).
Does this mean that Americans don’t value homeownership anymore?
Not at all. A survey last year by Wells Fargo found that 93 percent of respondents believe homeownership is an achievement to be proud of, and 86 percent say owning a home is a dream come true.
In reality, there are a number of factors that are making it difficult for some people to buy a home. Lack of existing home inventory is certainly a factor, and new home construction hasn’t been able to fill the gap. Affordability is a challenge, especially for young people with heavy student loan obligations and other first time buyers who may be struggling to save enough for a down payment or closing costs. Additionally, in the wake of the 2008 housing crisis, mortgage underwriting standards were tightened, making it harder for buyers with less than stellar credit scores or non-traditional income to qualify for a loan.
While these factors, and others, are curbing the overall rate of homeownership, the effect is felt even more by minorities seeking to own a home. A recent Redfin study of 30 metro areas found that of people earning the median area income, only 18% of Hispanic and 14% of African American residents have access to affordable housing (as opposed to 43% of Asian and 41% of White Non-Hispanic).
Qualifying for a mortgage loan can also be more difficult for minority borrowers. In 2016, the denial rate for conventional loans was 9 points higher for Hispanic applicants than for White Non-Hispanic borrowers. Additionally, 27 percent of Hispanic consumers are “credit invisible,” meaning that their lack of credit history makes it difficult for lenders that depend heavily on credit scores to evaluate their creditworthiness.
Yet, despite these and other obstacles, the Hispanic homeownership rate is actually rising, while all other rates have been decreasing. In 2016, the rate reached 46%, marking a two-year period of growth over 45.6% in 2015 and 45.4% in 2014. While those gains may seem small, last year there were more than 7.3 million Hispanic homeowners, with 330,000 new households added (a whopping 38 percent of all households formed).
By 2020, more than half of new homeowners will be Hispanic. So what can the real estate industry do to make the process easier for them?
First, it’s important for both real estate agents and mortgage professionals to recognize and understand the cultural nuances of the Hispanic/Latino community. Family is very important, which can sometimes result in a multi-generational household with different housing needs than other demographics. Even when a single person or young family is buying a home, many different family members may be involved in the decision-making process.
If I can give you one piece of advice about working with Hispanic families, it’s be prepared to work with the “whole” family. If a daughter is buying a home, she will most likely bring her parents and her siblings and vice-versa. It’s a common practice, especially if they’re purchasing their first home. – Erika Villegas, ERA Mi Casa Real Estate
There’s also the issue of language. While the majority of Hispanic home buyers are millennials who are fluent in English, they may be representing or consulting with other family members who mainly speak Spanish. Being bilingual is certainly a plus for real estate pros, but simply having printed materials available in Spanish can help to educate everyone involved about the home buyer process. It also establishes a level of trust between the buyer/family and the professional, which is another important factor.
Like many demographics, trust is deeply valued in business relations. However, with Hispanic Millennials it is everything. Becoming a trust agent to Hispanic Millennial homebuyers should be a top priority for Loan Officers. Make the concept of homeownership relevant to them; help connect the dots as to how buying a home — as opposed to renting — is going to help build their family’s wealth faster. – Ben Smidt, Mortgage Guaranty Insurance Corp. (MGIC)
In a recent Fannie Mae National Housing Survey, 34% of Hispanic respondents said that affording a down payment and/or closing costs was the biggest hurdle to buying a home, while 36% identified their lack of credit history as the biggest issue. Thus, it seems that lenders especially play a huge role in helping Hispanic homebuyers realize the American Dream.
Fortunately, some lenders, such as Freddie Mac, are beginning to offer alternatives to the traditional credit-score driven approval process. Others, such as New American Funding, are committing resources to increase not only Hispanic homeownership but also the number of mortgage professionals serving this community. Lenders can also help dispel the myths – such as the 20% down payment – that may keep Hispanic homebuyers, and others, from even attempting to buy a home, and be ready to refer buyers to down payment assistance programs and non-conventional mortgage products.
As observed by the Hispanic Wealth Project, Hispanic homebuyers desire and value homeownership, they are becoming better educated, earning more, and forming households faster than any other demographic. Thus, their conclusion that “a strong Hispanic housing economy is increasingly critical to the health and well-being of the overall economy.” We couldn’t agree more.