Housing affordability near record low hits Black buyers particularly hard

After years of mostly steady decline, the Black homeownership rate in the U.S. saw its largest jump on record in the early days of the pandemic. Now, soaring borrowing costs and home prices threaten to erode those gains.

Black Americans—who for decades in the mid-20th century were shut out of swaths of the housing market by redlining and other racist practices—are disproportionately likely to be first-time buyers. And newcomers face a particular disadvantage in this market: They haven’t benefited from rising home equity, so they may need to come up with larger down payments.

And that may prove an especially big hurdle in a demographic group where the median household income is lower than the national average.

Black buyers must navigate a drastically different landscape than in 2020, when mortgage rates had not yet climbed to their recent highs and federal stimulus checks were helping many consumers feel flush. That year, Black homeownership jumped to nearly 46%, the highest since 2010, according to Census Bureau data, and held close to that rate in 2021 and 2022.

But that relatively brief window of opportunity has closed.

“It’s an incredibly difficult market for all home buyers right now, especially first-time home buyers and especially first-time home buyers of color,” said Jessica Lautz, deputy chief economist for the National Association of Realtors.

Affordability crisis

Almost half of Black home buyers in 2022 were first-time buyers, according to a report by the NAR.

Their challenges are in sharp relief in the Atlanta metro area, which is home to the second-largest Black population in the U.S. The median home price there in November was 54% higher than it was four years ago, a larger jump than the 37% increase seen nationwide.

That’s made for a frustrating house-hunting experience for Shakeira Wesley and her husband Tyreke Wesley, who have been looking for a home in Atlanta since September. The couple has been pre-approved for a $265,000 mortgage loan, but is struggling to find a place in that price range. They have extended their search a bit further out into Decatur, Georgia.

“In our area where we’re renting, for $265,000 you can get, like, a shack—and I’m not even exaggerating,” Shakeira Wesley said.

Omid Zanjanchian, Wesley’s real estate agent, said he’s seen a decline in clients and transactions since mortgage rates began climbing. Many of his clients, who he said tend to be Black first-time buyers, are being approved for smaller loans and taking longer to find homes.

“You have to get creative and kind of look at certain pockets of the city or go a little bit further out from the city to find that level of affordability,” Zanjanchian said.

The affordability crisis is hardly unique to Atlanta. The median home price in the Chicago metro area, another place with a large Black population, was $298,789 as of November, up 37% from four years earlier, according to the Federal Reserve Bank of Atlanta. And the median home price in the Washington metro area stood at $511,484 in November, an increase from $401,025 four years prior.

The Atlanta Fed tracks housing affordability back to 2006, and the national measure is near its lowest point in the available data.

Mortgage rates have begun to decline over the last couple of months, but remain well above early pandemic levels. The US average rate for a 30-year fixed loan was 6.69% for the week of Jan. 25, according to Freddie Mac.

“The challenge for African Americans is twofold,” said Domonic Purviance, a subject matter expert at the Atlanta Fed. “It’s finding housing that is in an affordable price range, but also once you find a house, being able to qualify based on the minimum payment, because interest rates are much higher.”

House-hunting challenges

Some 32% of those who bought homes in the year ended June 2023 were first-time buyers, according to a National Association of Realtors survey. That’s up from 26% the previous year, but well below the long-term average of 38% seen since 1981—a sign of how difficult it is to gain a foothold in the market.

Black buyers face additional hurdles, too: They are more likely to hold student-loan debt, said Lautz, the NAR economist, which can eat away at money that might otherwise have gone to a down payment.

“If you’re a first-time home buyer in the market and you don’t have a generational transfer of wealth—which we know that Black home buyers are less likely to have—you’re going to have a harder time entering into homeownership,” Lautz said.

One of the biggest challenges to Black homeownership historically has been higher denial rates for mortgage loans, and that issue persists. In 2022, the mortgage denial rate for Black applicants was 16.8%, well above the 6.7% denial rate for White, non-Hispanic applicants, according to the Consumer Financial Protection Bureau.

The Black buyers who are managing to close on a home are sometimes finding it’s not the one of their dreams.

Khalid Smith and his wife, Holy, closed on a home in October in Atlanta. Though the couple was pre-approved for a $325,000 mortgage, they wanted to find a home under $300,000, but had challenges finding one in that range that they liked.

The couple, also clients of Zanjanchian, put offers on multiple houses.

They ultimately closed on a $314,000 home that Smith described as “dated,” but move-in ready. He said a lending program that offers first-time homebuyers up to $12,500 for down payment and closing costs helped them to afford the purchase.

“We wouldn’t have been able to get this house without it,” Smith said.

‘Not enough supply’

Purviance of the Atlanta Fed notes that the shortage of affordable options for first-time buyers reflects more than the reticence of current homeowners to sell properties where they enjoy mortgage rates of 4% or lower.

“We’re not building enough new houses,” Purviance said. “And the new houses that we are building tend to be in the higher price points. So, it’s just not enough supply to meet the demand.”

In response to that mismatch, Karen Hatcher, chief executive officer of Sovereign Realty & Management in Atlanta, has begun working with minority builders who are willing to build starter homes at affordable prices.

Purviance said that while initiatives like Hatcher’s are helpful around the edges, they aren’t widespread enough or fast enough to meaningfully move the needle on affordability any time soon.

“The level that’s needed, it’s difficult to scale that level of affordability projects,” Purviance said. “It’s a tough issue to solve, because it really isn’t an easy answer.”