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The COVID-19 pandemic has made it much harder for Black Americans to access mortgage credit, according to a new analysis of federal data, complicating efforts to narrow the racial wealth gap.
A new report from Zillow
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found that the mortgage denial rate was 84% higher for Black applicants than their white counterparts in 2020, the most recent year for which data was available. The report was based on an analysis of data collected by the federal government from mortgage lenders under the Home Mortgage Disclosure Act.
The gap between Black and white mortgage applicants grew considerably amid the COVID-19 pandemic, the report noted. In 2019, Black applicants were denied 74% more than white applicants.
Overall, nearly 20% of Black Americans who applied for a mortgage in 2020 were denied, representing the highest denial rate for any racial or ethnic group. In contrast, 10.7% of white applicants were denied a loan in that year.
Regionally, denial rates were higher in the South. The highest denial rate for Black applicants was in Mississippi, where 31% of these prospective borrowers were declined a loan, followed by Arkansas (26%) and South Carolina (25.8%).
The growing disparity in homeownership between Black and white Americans — at a time when most homeowners are seeing their wealth soar due to rising home values — underscores who the winners and losers are in today’s market, said Zillow economist Nicole Bachaud.
“While credit borrowers overall are stronger now than ever, the gap in credit access is growing along racial lines,” Bachaud said in the report. “Policies and interventions that target the barriers keeping Black Americans from homeownership are keys to achieving housing equity.”
The Black homeownership rate has rebounded to around 44% in recent quarters, after dropping as low as 40.6% in the second quarter of 2019, which represented the lowest level since the passage of the 1968 Fair Housing Act. Still, the Black homeownership rate remains well below the high watermark of 49.7% set back in 2004.
“‘While credit borrowers overall are stronger now than ever, the gap in credit access is growing along racial lines.’”
For Black applicants who were denied a mortgage, the most common reason recorded by mortgage lenders was having a poor or insufficient credit history. This accounted for over a third of all the denials reported, according to the housing data Zillow analyzed. As of 2019, around one in seven Black households were unbanked, meaning they did not have a bank account, according to data from the FDIC.
“A higher prevalence of nontraditional services (payday lenders, etc) and fewer traditional services (like banks) contributes to poor credit health of entire communities, particularly communities of color,” Bachaud wrote in the report.
Aside from issues related to financial access, Black households have also experienced a more substantial financial impact from the pandemic on average than their peers. Black households have been more likely to experience job or income loss due to COVID-19 and more likely to be behind on mortgage or rental payments.
That only added to the challenges Black Americans already faced in saving enough money to purchase a home stemming in part from a lack of generational wealth and a persistent racial wage gap. Previous research from Zillow found that it would take an additional decade for Black applicants to save the same size in a down payment as the national average.
Zillow’s analysis did contain one silver lining for Black Americans: Those who have purchased homes have enjoyed a faster rate of home-value growth. Black-owned homes grew in value at a rate that was 1.5 percentage points higher than the national average as of October.
Still, at the current pace, it would take over 22 years for Black-owned home values to reach the median home values nationwide.
