Black people in Philadelphia will need both short-term support and long-term solutions to help them achieve homeownership in the aftermath of the pandemic and as racial property gaps persist, according to the Federal Reserve Bank of Philadelphia.

Because of entrenched inequalities in employment and income, owning a home is relatively more expensive for black homeowners than for white homeowners, according to an October report from the Philadelphia Fed. This puts black homeowners at increased risk of losing their home. Because of occupational segregation and barriers to wealth creation, black people are, in general, more vulnerable to economic downturns. They have also been disproportionately affected by the pandemic.

“The COVID-19 pandemic makes it clear that homeownership continues to be much more precarious for black homeowners in Philadelphia than their white counterparts,” the report’s authors wrote.

The racial divide between owners and its consequences

The gap between homeownership rates for blacks and whites in Philadelphia in 2019 was slightly larger than it was 30 years ago, according to a new report released by the Philadelphia Fed on Monday. . Homes are most people’s most important assets and help build generational wealth.

In 2019, 47% of black people in Philadelphia owned homes, compared to 59% of white residents.

The gap is a source of concern for the economy as a whole, said Theresa Singleton, senior vice president and head of community affairs at the Federal Reserve Bank of Philadelphia and co-author of the report. Too often, the disparity in homeownership “is seen as a problem of a specific demographic group when it has larger economic implications”. High rates of homeownership contribute to the economic stability and growth of communities.

Gaps in black and white homeownership transcend a booming market and threaten to leave some behind

Black residents today face social, economic and financial barriers to homeownership as well as the lasting effects of historic discrimination that has prevented Black residents from buying homes. The city’s black homeownership rate has steadily declined over the past three decades. During this period, the rate of home ownership by whites also declined, but the gap remained relatively stable.

“I was a little surprised at the consistency of the homeownership rate differential,” said Lei Ding, senior economic advisor in community development at the Federal Reserve Bank of Philadelphia and co-author of Monday’s report. In light of the pandemic highlighting inequalities and a renewed political emphasis on fairness and structural racism, “now might be the right time to right this historic wrong,” he said.

Ways to close the home ownership gap include increasing household income of black residents, providing affordable housing, and accessing mortgages, according to researchers at the Philadelphia Fed. In addition to short-term support such as homeownership counseling and down payment assistance, policymakers need to reinvent structures, such as the credit system, that were designed to be successful. decades ago to prevent black people from owning property and are still operating as intended, Singleton said.

Less income means homes are less affordable

White Philadelphia homeowners have a median household income of $ 77,696, while the median household income of black homeowners is $ 47,141, according to Philadelphia Fed researchers’ analysis of US data. Census Bureau.

Over the past two decades, home values ​​in Philadelphia have skyrocketed as black household income has plummeted. The median value of Philadelphia homes rose from 2.5 times the median income of black households to more than five times their income, according to the Philadelphia Fed. The home value-to-income ratio for white homeowners in 2019 is roughly what it was for black homeowners in 2000 before much of the home value boom.

Stephanie Butler, director of housing advice at Mount Airy Community Development Corp., said her clients face low wages, high debt and little savings. To help improve home ownership rates for blacks, she said one possible step would be for Philadelphia to sell vacant properties to community organizations that could improve them and sell them at prices residents can afford. .

While black homeowners in Philadelphia pay on average a few hundred dollars less per month for homeownership expenses such as mortgage payments, property taxes and utilities, they are spending more of their income. to those expenses, according to researchers at the Philadelphia Fed. Black households pay on average about 20% of their income, compared to about 17% for white households.

“It’s not just a housing issue,” Singleton said of the Philadelphia Fed. “It’s a question of employment and the labor market. When considering solutions to structural problems, policymakers need to be aware of how the problems intersect and address their root causes, she said.

Reflecting the racial divisions between neighborhoods in Philadelphia, black homeowners are likely to live in predominantly black neighborhoods, where residents earn less income, face longer commutes to work, are less likely to have internet access at home which could help with job search, and are more likely to have lower value homes, the result of a legacy of divestment and discriminatory lending policies.

Unequal access to mortgage

In 2020, financial institutions were 2.7 times more likely to turn down loans to black applicants in Philadelphia than to white applicants, according to the Philadelphia Fed.

“They’re not doing openly redlining anymore. They’re finding another way,” said Butler, who spent nearly three decades as a housing consultant. “Banks will continue to find a way, unfortunately, to have a barrier in place, which is 9 1/2 times out of 10 that will affect black home ownership.”

According to the Philadelphia Fed, the limited credit histories and poor credit scores of aspiring black homeowners are helping to widen the racial gap between home ownership. In the city last year, lenders cited credit history as the reason for turning down 16% of rejected white applicants, but 29% of rejected black applicants.

Lenders factor in credit defaults such as past medical bills that are more likely to hit black residents, Butler said.

One possible solution to increasing black borrowers’ access to loans outside of a system that was not designed for them is to give them credit for rent payments and other monthly expenses, the researchers said. of the Philadelphia Fed. In September, government-backed mortgage financier Fannie Mae began allowing lenders to consider applicants’ rent payments. In the short term, researchers from the Philadelphia Fed said, the credit scores of those who needed help during the pandemic should be protected.

Black neighborhoods are more susceptible to subprime loan products and were hit harder by the housing collapse that preceded the Great Recession. People who have seen family and friends lose their homes to foreclosure may be more hesitant to own a home.

Ding, of the Philadelphia Fed, said black homeowners need support and access to sustainable loan products.

The mortgage default rate for black homeowners fell from 12% in March 2020 to 20% in May 2020, according to the Philadelphia Fed. At the start of this year, 19% continued to be behind on payments, compared to 6% or less of white mortgage holders.