Household wealth in the U.S. is mostly concentrated in retirement accounts and home equity. Each accounts for roughly a third of all household wealth, according to an August 2020 U.S. Census report.
However, this wealth is mostly concentrated among caucasian Americans. A new study by Clever confirms the extent of this racial wealth gap in the U.S.
According to Clever’s research, the typical Black family has approximately $12,780 in household wealth, compared to $139,300 for white families. This means the typical Black family has less than one-tenth the household wealth of a typical white family.
Considering 29% of an average American’s wealth comes from home equity, this means most Black families have less than $4,000 in home equity. While this can be attributed to many factors, amassing generational wealth is certainly one of them — and the U.S.’s history of discrimination had made it difficult for Black families to do so.
Even before moving into a new home, Black families face a much different — and more expensive — reality than white families. Black borrowers tend to pay 0.29% more on their mortgage than white borrowers. An even greater gap — 0.57% exists between mortgage interest rates for Black women compared to white women.
Lenders perceive borrowers to carry more risk if they have less money, so Black families are more likely to be denied mortgages. As a result, white Americans are 1.7 times more likely to own a home than Black Americans (74.5% versus 44.1%, respectively).
This also means that Black homeowners spend more of their income on housing — nearly a quarter of it. And this may be one reason that in the first quarter of 2020, the Census Bureau reported that black households had the lowest homeownership rate at 44%, nearly 30 percentage points behind white households.
Urban’s study in 2012 found that real estate agents and rental housing providers recommend and show fewer available homes and apartments to minorities than equally qualified whites.
Black homeowners own fewer homes or buy homes for higher interest rates with low down payments — meaning they also have less equity in their homes and less wealth as a result. The pandemic has only made the problem worse, as it has more negatively affected low income earners. Many of them may be going into debt paying for housing and could face foreclosure or bankruptcy.
The typical median listing price for homes in predominantly Black metro areas is around $167,508 — compared to $355,000 in neighborhoods where the percentage of Black residents is under 1%, according to Clever’s study. With each 1% increase in the Black proportion of the population in a particular zip code, home values decrease by approximately $2,581.
This home price disparity is regardless of home size: In predominantly white zip codes, homes sell for approximately $193 per square foot, compared to around $115 per square foot in predominantly Black zip codes. This means that a 2,000-square-foot home would be $386,080 in a predominantly white zip code — but only $229,900 in a predominantly Black one.
Racial wealth gap and housing inequality only worsened after the 2008 housing crisis: In 2007, the difference between Black-owned and white-owned average home prices was about $57,668, a gap that nearly doubled to $94,489 by 2020.
The top ten metropolitan areas with the greatest property value disparities between predominantly Black and non-Black zip codes are:
If the U.S. could solve this racial wealth gap, it could add an estimated $1 trillion to $1.5 trillion to its economy by 2028. And much of the gap could be solved through housing and homeownership initiatives. Equalizing homeownership rates alone would decrease the racial wealth gap by more than $40,000.
Plus, revitalizing Black neighborhoods can lead to a healthier economy: Every 10% increase in total housing market wealth translates to $147 billion in additional consumer spending. Building just 100 new low-income housing units could immediately create 80 jobs, plus an additional 72 jobs supported by ripple effects and new residents.
Innovative solutions, like the nonprofit Dream Builders 4 Equity, can help reduce this wage gap and transform the lives of youth. Dream Builders 4 Equity’s Real Estate Program provides youth employment, training, & mentorship. While working alongside minority contractors, youth rehab vacant homes in North City St. Louis to be sold to first-time home owners. This model could be adapted to other cities to provide similar benefits to the community.
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