According to a recent Bloomberg article, the economic recovery is reaching more white households than African American households. The article cites a Pew study that found white households’ median wealth is 20 times that of African Americans, a gap twice the pre-recession size.
The disparity is tied in large part to the housing bust. According to Pew, African American households’ financial portfolios are much more dependent on their housing wealth than other assets (e.g., a 401(k) or stocks). So, when the housing bubble burst, it disproportionally affected African Americans. Bloomberg reports that the homeownership rate for African Americans fell from 50% during the housing bubble to 43% in the second quarter of 2013, its lowest rate since 1995. According to the U.S. Census Bureau, the homeownership rate for whites stopped falling two years ago, settling around 73%, only 3 percentage points below the 2004 peak.
Analysts say “reverse redlining,” the predatory lending practice of steering minority borrowers toward high-cost mortgages, is partially to blame. When the housing bubble burst, banks foreclosed on these subprime mortgages. One in 10 African American borrowers lost their home, double the foreclosure rate for whites.
Analysts say that African Americans’ homeownership rate may be slow to return to its pre-recession number for a number of reasons including stricter underwriting standards; high unemployment among African Americans; and a lack of affordable housing due to purchases by flippers, private equity firms, and other cash buyers.
