The Urban Institute recently released an article titled, “Why the low Hispanic homeownership rate matters.” In it they discuss the nation’s changing demographics, and according to the article:
“Hispanics…will make up more than half of all now households formed between 2010 and 2020, and more than half again between 2020 and 2030. Yet, according to the American Community Survey, only 45 percent of Hispanic households owned their homes in 2013 compared with 71 percent of whites. If one were to hold those rates constant as Hispanics become an increasing percentage of the pool of homebuyers, the homeownership rate would drop precipitously, causing considerable economic upheaval.”
That last sentence caught our attention; but what are the challenges that can cause the Hispanic homeownership rate to plummet?
Here are two points taken from the article:
“The median age in the Hispanic population is 28, compared with 42 in the white population,” and in many cases, Hispanics don’t have the wealth of their parents to rely on in the purchase of their first home. Additionally, younger people usually have lower credit scores.
Hispanic borrowers have lower credit scores compared to white borrowers. The difference in credit scores between Hispanic borrowers and Hispanic renters is even greater, however. As the report mentioned, Hispanics are disproportionately affected by the tightening of credit, particularly at the Federal Housing Administration (FHA).
The article recommends two solutions, but first makes it clear that, “the answer to the challenge of lower Hispanic homeownership is not to loosen market standards to accommodate families who cannot afford to be homeowners…The answer is instead to increase the number of families who are in the financial position to be homeowners and to ensure that the market effectively serves all who are.”
Here are two solutions taken from the article:
1. Down Payment Assistance
The article points out the fact that “…the government and philanthropic organizations [will] match the savings that those of modest means put toward their first home, so that families have an easier time becoming homeowners and have significant equity when they do.” This is great to know since, as we mentioned above, younger Hispanics cannot rely on financial help from their parents.
2. Financial Counseling
We covered this solution in a blog post last week. Homeownership counseling is helping many Hispanics achieve significantly better loan performance once they take advantage of the available programs.
Hispanics will play an important role in the United States’ future homeownership rate. To avoid “…the homeownership rate dropping precipitously, [and] causing considerable economic upheaval,” we will see some inevitable changes made in the housing market in order to accommodate Hispanic buyers.