May 12, 2009

Minorities, Immigrants and Homeownership

Through Boom and Bust

I. Overview

The boom-and-bust cycle in the U.S. housing market over the past decade and a half has generated greater gains and larger losses for minority groups than it has for whites, according to an analysis of housing, economic and demographic data by the Pew Hispanic Center, a project of the Pew Research Center.1 From 1995 through the middle of this decade, homeownership rates rose more rapidly among all minorities than among whites. But since the start of the housing bust in 2005, rates have fallen more steeply for two of the nation’s largest minority groups—blacks and native-born Latinos—than for the rest of the population.

Overall, the ups and downs in the housing market since 1995 have reduced the homeownership gap between whites and all racial and ethnic minority groups. However, a substantial gap persists. As of 2008, 74.9% of whites owned homes, compared with 59.1% of Asians, 48.9% of Hispanics and 47.5% of blacks.

At the same time, blacks and Latinos remain far more likely than whites to borrow in the subprime market where loans are usually higher priced.2 In 2007, 27.6% of home purchase loans to Hispanics and 33.5% to blacks were higher-priced loans, compared with just 10.5% of home purchase loans to whites that year. For black homeowners who had a higher-priced mortgage, the typical annual percentage rate (APR) was about 3 percentage points greater than the rate on a typical 30-year, fixed-rate conventional mortgage; for Latinos who had a higher-priced mortgage, the typical rate was about 2.5 percentage points higher than that of the conventional mortgage.

Moreover, in 2007, blacks and Hispanics borrowed higher amounts than did whites with similar incomes, exposing themselves to greater debt relative to their incomes. On both counts—the likelihood of higher-priced borrowing and higher debt relative to income—the gap between minorities and whites is greater among high-income households than among low-income households.

This study analyzes three major interrelated aspects of the U.S. housing market: trends in homeownership from 1995 through the middle of 2008 among different racial, ethnic and nativity groups;3 higher-priced lending to Hispanics and blacks in 2006 and 2007; and differences in foreclosure rates across the nation’s 3,141 counties.

One surprise to emerge from this analysis is that the recent decline in the homeownership rate has hit native-born heads of households harder than immigrant householders. Immigrant householders are less likely than native-born householders to be homeowners (52.9% versus 70.0% in 2008) but their losses in recent years have been smaller than those of the native born.

The explanation for the relatively modest impact of the recent housing market turmoil on immigrants appears to lie in the changing characteristics of the foreign born. Among other things, the typical immigrant in 2008 had spent more years in the U.S. and was more likely to be a U.S. citizen than was the typical immigrant in 1995. Those factors, strongly associated with higher rates of homeownership, appear to have mitigated recent troubles in the housing market among immigrants.

The analysis reveals that blacks and native-born Hispanics are among those who experienced the sharpest reversal in homeownership in recent years. Overall, the homeownership rate in the U.S. dropped from 69.0% in 2004 to 67.8% in 2008, a loss of 1.2 percentage points. Over the same period, the homeownership rate for black households decreased 1.9 percentage points, from 49.4% to 47.5%, reversing four years of gains. The homeownership rate for native-born Latinos peaked a year later in 2005. But since then it has fallen from 56.2% to 53.6%, a loss of 2.6 percentage points in just three years.4

Immigrant households did not experience similar losses in homeownership. For all immigrants, the homeownership rate declined modestly, from a high of 53.3% in 2006 to 52.9% in 2008. The rate for foreign-born Latinos has yet to diminish. It reached a peak of 44.7% in 2007 and was unchanged in 2008.

This report also focuses on differences in 2008 foreclosure rates across the nation’s 3,141 counties and the role of demography in explaining those differences.5 In 2008, the national foreclosure rate was 1.8%, triple the rate in 2006. But the foreclosure rate—or the percentage of housing units with at least one foreclosure filing—varies widely across counties. The analysis finds that counties with higher shares of immigrant residents had elevated rates of foreclosure. It is estimated that of two counties with similar economic and demographic characteristics, the one whose immigrant share of the population is 10 percentage points higher than the other has a foreclosure rate that is 0.6 percentage points higher.

But it cannot be inferred from this finding that immigration levels in and of themselves are the cause of elevated foreclosures. In recent years, the construction boom attracted immigrants in large numbers into new settlements in the U.S. (Kochhar, Suro and Tafoya, 2005; Frey, Berube, Singer and Wilson, 2009) Many of these areas, such as Nevada’s Clark County, which includes Las Vegas, are now experiencing sharp reversals in construction and a wave of foreclosures.6 Thus, the presence of immigrants in a county may simply signal the effects of a boom-and-bust cycle that has raised foreclosure rates for all residents in that county.

The state of the local economy is also an important determinant of foreclosures. A county’s unemployment rate that is 1 percentage point higher than in a typical county is associated with a foreclosure rate that is 0.1 percentage points higher. Home prices falling annually by about 2 percentage points more compared with a typical county are also estimated to raise foreclosure rates by 0.1 percentage points.7 Local housing costs, as reflected in high loan-to-income ratios, and a greater incidence of higher-priced lending to blacks and Hispanics are also linked to higher foreclosure rates.8

Data from a number of sources are used in this study. They include demographic and homeownership data from the Census Bureau’s American Community Survey (ACS) and Current Population Survey (CPS), foreclosure data from RealtyTrac®, loan data from the Home Mortgage Disclosure Act (HMDA), labor market data from the Bureau of Labor Statistics (BLS), and home prices from the Federal Housing Finance Agency (FHFA).

The major findings of the study are as follows:

Homeownership

Homeownership Rate: The percent of householders, or heads of households who report living in owner-occupied homes.

Loans for Home Purchase

Higher-Priced Home Purchase Loans: Mortgage loans with annual percentage rates that exceed the rate on U.S. Treasury securities of comparable maturity by a specified threshold (3 percentage points for first-lien loans). Often used as a proxy for lending activity in the subprime market.

Foreclosures

Foreclosure Rate: Percentage of housing units with at least one foreclosure filing in the year.

About this Report

This study analyzes three major interrelated aspects of the U.S. housing market: trends in homeownership from 1995 through the middle of 2008 among racial, ethnic and nativity groups; higher-priced lending to Hispanics and blacks in 2006 and 2007; and differences in foreclosure rates across the nation’s 3,141 counties.

A Note on Terminology

The terms “Latino” and “Hispanic” are used interchangeably in this report, as are the terms “foreign born” and “immigrant.” The terms “whites,” “blacks” and “Asians” are used to refer to their non-Hispanic components.

Foreign-born refers to an individual who is born outside of the United States, Puerto Rico or other U.S. territories and whose parents are not U.S. citizens.

  1. All references to whites, blacks and Asians in this report are to the non-Hispanic components of those populations. The terms Latino and Hispanic are used interchangeably.
  2. Activity in the subprime market is approximated in this report by higher-priced lending. Higher-priced loans have an annual percentage rate (APR) that exceeds the rate on U.S. Treasury securities of comparable maturity by a specified threshold (3 percentage points for first-lien loans). Higher-priced loans are believed to encompass the vast majority of subprime loans (see “Frequently Asked Question About the New HMDA Data,” available at http://www.federalreserve.gov/newsevents/press/bcreg/bcreg20060403a1.pdf).
  3. References to homeownership in 2008 for sub-national populations are based on trends through June 2008.
  4. The national homeownership rate is as reported by the Census Bureau. Estimates of homeownership by race, ethnicity and nativity are the Center’s estimates derived from the Census Bureau’s Current Population Survey data.
  5. This question is not directly answerable because foreclosure statistics by race, ethnicity or nativity are currently not available. However, the relationship between demography and foreclosure activity at the county level is discerned in this report through the marriage of different sources of data.
  6. Census Bureau data show that permits for new privately owned housing units in the Las Vegas-Paradise metropolitan area fell from 39,237 in 2005 to 12,538 in 2008, a drop of 68%. That was greater than the nationwide drop of 58% in permits. (http://www.census.gov/const/www/C40/table3.html)
  7. Home prices rising slower by about 2 percentage points on an annual basis have a similar effect on foreclosure rates.
  8. Data on higher-priced loans to immigrants are not available.
  9. The national foreclosure rate of 1.8% is the ratio of all foreclosure filings in the U.S. to all housing units in the U.S. It is essentially a weighted average of foreclosure rates in counties where the weights are the number of housing units in a county. The weighted average (1.8%) is higher than the simple average (0.6%) in this case because the foreclosure rate is higher in more populated areas.