After a brutal winter and difficult start to the spring, a string of housing data set to be released this week is likely to show continued overall improvement in the housing market. Though the monthly numbers are up and down the trend is clear: the housing market is stronger by some measures than at any point since 2005. But this good news isn’t good for everyone and that’s bad for our economy.
Despite strong gains, especially at the top of the market, the housing recovery is preceding in such way that keeps those hardest hit by the foreclosure crisis and frozen out of the housing market left on the margins; particularly people of color and people under 35. The point is that the housing market may be back but in a way that only enlarges existing inequities. But before turning to where the housing market is off track, let’s take a look at what’s working.
Back from the Precipice…
All of the main indicators for where the housing market is headed year-upon-year are up. Existing home sales, new home sales and year-to-year price increases are the highest in years. According to the National Association of Realtors, in 2013, existing home sales reached a seven year high. In fact, more new homes were sold last year than in any year since 2007 and the median price of existing homes posted its strongest gains since 2005.
Though the housing market suffered a setback early this year due to extreme cold and the lack of homes going on the market for sale, according to a consensus view compiled by The Wall Street Journal, this month’s housing data will show either little change from last month or a slight improvement. That’s a dramatic turnaround from the height of the Great Recession when sales were collapsing by as much as 40 percent each month. It all points to a housing market that’s seemingly back on its feet.
The housing recovery is a leading reason why total national household wealth now exceeds pre-crisis levels. According to The Federal Reserve, household wealth posted its biggest gains last year of any since records began to kept in 1945. Household wealth in the United States now stands at $70 trillion.
…Except in Communities of Color
The problem is that these gains are concentrated. As The Federal Reserve points out more than nine out of 10 of the wealthiest households in America are white (PDF). A report by the Urban Institute last year quantifies the disparity fueled by this racial wealth gap (PDF) and it’s off the charts. Average white household wealth is $632,000 versus $110,000 for Latinos and $98,000 for blacks.
What blew open the racial wealth gap was the Recession and communities of color haven’t recovered from it. As NYU Professor Darrick Hamilton told The New York Times, “It was already dismal. It got even worse.” That’s because housing forms a larger share of black and Latino net worth, the total value of what you own minus the debt of what you owe, than White households.
That’s why black and Latino home ownership rates collapsed to levels not seen since the 1990s. In fact median household net worth of African-Americans and Latinos tanked by as much as 60 percent.
Warning Signs Ahead
Consequently historically marginalized communities need a broad-based housing recovery in order to begin to recoup a generation’s worth of lost wealth. But there are some worrying trends in the current housing data for why that might be harder than at any point in nearly three decades:
1) Price increases are fueled by Wall Street and the wealthy.
Although theoretically it’s great for all homeowners, the most of the recent benefits from higher prices are flowing into fewer hands. As I have written before, billions of dollars in mass purchases by Wall Street firms is a driving force behind the sales of existing homes. As the value of these homes grows, Wall Street, rather than average homeowners, benefits.
Moreover, the purchases by the rich of second homes—instead of new purchases by first-time homebuyers—is pushing new home prices upwards. Both of these trends underscore that what appears to be a functioning market is actually one dominated by increasing fewer players. Another indicator of this is the fact one out of three home purchases are now all cash deals, double the historical norm.
2) Lending Standards have tightened.
Keeping homeownership out of reach for many is that financial institutions have tightened mortgage eligibility rules. Many banks won’t allow down payment help from relatives or friends. Additionally average credit scores required to secure Federal Housing Authority (FHA) home loans aimed at helping the non-wealthy are around 700. Six hundred eighty is the average score of most Americans but three out of four African-Americans have scores close to 620.
3) Lack of jobs.
The greatest determination of whether people can buy and hold on to homes are jobs and income. The double-digit unemployment of blacks and youth, and an unemployment rate amongst Latinos 50 percent higher than whites underscores that homeownership in these communities is infinitely harder. The fact that interest rates are up by as much as 20 percent only adds to the income required to purchase a home. And with the top 1 percent capturing nine out 10 dollars in national income, the likelihood of home ownership skews even more towards those with significant cash flow.
The bottom line is that our lopsided housing recovery is expanding racial and economic inequity, rather than narrowing it. And in just a few short years this will be a big problem.
As Forbes points out, in just six years the majority of prospective new home buyers will be people of color.
And given the centrality of housing to the nation’s economy, there’s no way the U.S. can have a strong future without reopening the doors of home ownership to everyone. But we can do just that.
As economist Thomas Piketty points out in his new book, “Capital in the 21st Century,” the only way to produce an economy that works for everyone is with economic policies that are actually designed to work for everyone. To that end, The Federal Reserve can encourage banks to return to common-sense lending policies like those that existed before the “anything goes” era of mid-2000s. And Washington can get serious about income and job growth by raising the minimum wage, enacting comprehensive immigration reform, and investing in the country ‘s future in a big way.
There’s lots that can be done to recreate a housing market produces the gains that all communities need, but we don’t have a second to waste in actually creating it.