“The challenge for African Americans is twofold,” said Domonic Purviance, a subject matter expert at the Atlanta Fed. “It’s finding housing that is in an affordable price range, but also once you find a house, being able to qualify based on the minimum payment, because interest rates are much higher.”
House-Hunting Challenges
Some 32% of those who bought homes in the year ended June 2023 were first-time buyers, according to a National Association of Realtors survey. That’s up from 26% the previous year, but well below the long-term average of 38% seen since 1981 – a sign of how difficult it is to gain a foothold in the market.
Black buyers face additional hurdles, too: They are more likely to hold student-loan debt, said Lautz, the NAR economist, which can eat away at money that might otherwise have gone to a down payment.
“If you’re a first-time home buyer in the market and you don’t have a generational transfer of wealth — which we know that Black home buyers are less likely to have — you’re going to have a harder time entering into homeownership,” Lautz said.
One of the biggest challenges to Black homeownership historically has been higher denial rates for mortgage loans, and that issue persists. In 2022, the mortgage denial rate for Black applicants was 16.8%, well above the 6.7% denial rate for White, non-Hispanic applicants, according to the Consumer Financial Protection Bureau.
The Black buyers who are managing to close on a home are sometimes finding it’s not the one of their dreams.
Khalid Smith and his wife, Holy, closed on a home in October in Atlanta. Though the couple was pre-approved for a $325,000 mortgage, they wanted to find a home under $300,000, but had challenges finding one in that range that they liked.
The couple, also clients of Zanjanchian, put offers on multiple houses.
They ultimately closed on a $314,000 home that Smith described as “dated,” but move-in ready. He said a lending program that offers first-time homebuyers up to $12,500 for down payment and closing costs helped them to afford the purchase.
“We wouldn’t have been able to get this house without it,” Smith said.
‘Not Enough Supply’
Purviance of the Atlanta Fed notes that the shortage of affordable options for first-time buyers reflects more than the reticence of current homeowners to sell properties where they enjoy mortgage rates of 4% or lower.
“We’re not building enough new houses,” Purviance said. “And the new houses that we are building tend to be in the higher price points. So, it’s just not enough supply to meet the demand.”
In response to that mismatch, Karen Hatcher, chief executive officer of Sovereign Realty & Management in Atlanta, has begun working with minority builders who are willing to build starter homes at affordable prices.
Purviance said that while initiatives like Hatcher’s are helpful around the edges, they aren’t widespread enough or fast enough to meaningfully move the needle on affordability any time soon.
“The level that’s needed, it’s difficult to scale that level of affordability projects,” Purviance said. “It’s a tough issue to solve, because it really isn’t an easy answer.”
This article was provided by Bloomberg News.