Why did COVID-19 improve Black and Latino homeownership?

New data reveals that Black and Latino homeownership rates increased twice as fast as the White homeownership rate did during the pandemic – and that these numbers are not as surprising as they may first seem.

Non-profit upward mobility and equity research organization the Urban Institute conducted a survey which showed that Black and Latino homeownership rates increased by 2% and 2.5%, respectively, during the COVID-19 pandemic, while the White homeownership rate chugged by at 1%.

The Urban Institute pointed out that people of color were much more vulnerable to job loss, wage decrease, and rental and mortgage payment defaults than White people were during the pandemic, making their homeownership rate look like a relative anomaly at first.

But the institute explained that Black and Latino households were more likely to rent than to buy in the years White aspiring homeowners typically bought their first home – what Urban referred to as “the prime homebuying ages.”

When the pandemic punched interest rates down low enough to make homeownership more affordable, even for minority groups, the Urban Institute found that young, high-earning, and highly educated borrowers were the ones who took advantage and drove homeownership rates up throughout 2020 and 2021. Black and Latino borrowers of this profile, especially, zeroed in on a normally elusive homeownership opportunity.

The data was consistent with that post-pandemic. After interest rates shot up beginning early 2022, the Urban Institute noted “some signs” emerging, showing that Black and Latino homeownership progress observed from 2019 to 2021 had reversed. Homes became significantly less affordable again.

Better education and income in a tightening market

“In general, households with high incomes and high educational attainment were more likely to access homeownership, with the share of loans made to borrowers with annual incomes above $75,000 increasing by nearly four percentage points [during the pandemic],” the Urban Institute wrote in a statement.

But the pandemic also accelerated the housing stock shortage and – with interest rates at sustained record-lows – the property market became more competitive. The growth in homeownership of Black and Latino borrowers with incomes above $75,000 outpaced that of high-income White borrowers – most of whom were already homeowners to begin with, the institute pointed out.

The proportion of Black and Latino homebuyers with at least a bachelor’s degree also grew more than any other racial or ethnic group between 2019 and 2021, increasing from 36% to 42% for Black homebuyers and from 30% to 37% for Latino homebuyers in the same period.

Remaining barriers to entry

Urban’s study further highlighted that Black and Latino homeownership could have increased even more if Federal Housing Administration (FHA) borrowers had faced less resistance in the housing market compared with borrowers with more resources.

The heightened competition brought about by COVID-19 made government loans commonly picked up by Black and Latino households, including FHA and VA, less attractive to sellers who were put off by the length of time these loans needed to close and their strict property condition requirements.

Between 2019 and 2021, the Urban Instituted recorded a 3% drop in the share of FHA-backed home purchase loans, while the share of VA loans dipped by roughly 1% across all racial and ethnic groups.

“Households with low incomes and wealth, young households, and Black and Latino households are more likely to use FHA or VA loans,” the institute said. “[This] indicates that if government loans were equally attractive to sellers, we could have observed a larger increase in Black and Latino homeownership.”

The age of the young homebuyer

Apart from income and education, age was also a factor. The Urban Institute’s analysis found that between 2019 and 2021, the proportion of young homebuyers started to grow across all racial and ethnic groups. Homebuyers younger than 45 increased from 51% in 2019 to 55% in 2021. This increase was most apparent for Black homebuyers younger than 45 (+5.3%), compared with Latino homebuyers (+4%) and White homebuyers (+3.5%) in the same period.

The Urban Institute explained that millennials, who had just come out of the Great Recession in the 2000s, suffered a homeownership capital lag at the age the previous two generations had typically begun closing deals on their first homes. Millennials were the largest and most diverse generation, so this lag informed the widening of the racial homeownership gap.

After years of delayed homeownership, however, millennials were finally starting to catch up.

Post-pandemic progress undone

Despite the encouraging numbers observed from 2019 to 2021, the Urban Institute said that the surge in Black and Latino homeownership then was not enough to match the pace at which interest rates subsequently rose. The first-time homebuyer share dropped from an encouraging one-third (34%) in 2021 to just over one-fourth (26%) in 2022, and the median age of first-time homebuyers reached 36 the same year – a record high. The proportion of Black homebuyers declined by 3%, while Latinos saw a 1% increase. Both groups lost to the share of White homebuyers, which grew by 6% in 2022.

“From these preliminary data, it is clear that mitigating racial disparities in homeownership, especially in the current high-interest-rate environment, requires well-designed and well-implemented solutions,” the Urban Institute said. “Although the low-rate environment and other economic conditions during the pandemic unleashed some pent-up housing demand among households of color, the majority of these households are still renters and face barriers to homeownership.”

The Urban Institute suggested the following policies to sustain the homeownership momentum built during the pandemic even amid high interest rates:

• Targeting down payment assistance to first-generation homebuyers to lower mortgage costs,
• Implementing special-purpose credit programs for borrowers or neighborhoods of color, and
• Incorporating positive rental payment history in mortgage underwriting.

“In the long term, policymakers can tackle systemic barriers that affect income, education, and other opportunity outlooks for people of color,” the institute concluded in its statement. “The longer we allow these systemic gaps to persist, the harder it will be to close the racial homeownership gap, especially in a tight housing market.”