Rising demand. Sinking supply. Tight inventory. And yet we’re experiencing a home-buying craze, with total home sales reaching a height not seen since 2006’s housing boom. After the housing market fell off initially when COVID hit, it rebounded in a big way by the fall. In fact, from September 2020 to February 2021, existing home sales were up 20% over the previous year on average.
According to the newly released State of the Nation’s Housing 2021 report from the Joint Center for Housing Studies (JCHS) of Harvard University, steps the government has taken to ease financial hardship during the pandemic have helped. Still, the way that support has helped varies widely among different demographics. The result is a homeownership gap increased by the pandemic, where lower income households and people of color are falling further behind.
Metrics from JCHS’s study are compelling. They serve as a wake-up call for mortgage professionals to build systems that address homeownership disparities. Specifically, lenders have a unique opportunity to connect with underserved communities through outreach and education. Doing so can help lenders both find new customers and play a part in leveling the homeownership field.
A deepening homeownership gap
When COVID-19 first hit, many assumed the housing market would be decimated. And for a while, it was. In April 2020, existing home sales dropped nearly 18%. The same metric dropped another 10% from April to May. Then, the Fed cut interest rates. Suddenly, sales shot back up nearly 21% in June.
The unexpected housing boom has been a silver lining to an otherwise economically devastating time. But it hasn’t benefited everyone the same way. In fact, JCHS’s study found that the recent home-buying craze has amplified wealth and homeownership gaps in dramatic ways.
“Millions of households were financially unscathed coming out of the pandemic,” said Alexander Hermann, Senior Research Analyst at the Joint Center for Housing Studies. “But the pandemic has left millions of others struggling to make their housing payments, especially lower-income households and people of color.”
Two groups diverge in pandemic’s after-effects
On one side, many millennials were able to save money after ditching sky-high rents in major cities. This accelerated their ability to buy homes. They and other wealthier buyers began relocating to more cost-effective areas, scooping up property and leading to a hot market with rising prices.
Meanwhile, many lower-income demographics and families of color were hit harder financially by the pandemic. Blue-collar workers who often had no work-from-home option were laid off as companies struggled to stay above water. And on the housing front, lower-income renters began to fall late on payments, pushing back homeownership dreams as they struggled to avoid eviction. Homeowners who lost their jobs, meanwhile, relied on government-imposed foreclosure moratoriums and other financial assistance to stay in their homes.
These two divergent groups have fared far differently in the aftermath of COVID-19. As the housing market remains highly competitive, forbearance programs come to an end, and government assistance runs out, at-risk communities are only more likely to fall behind in building wealth and buying homes. Wealthier groups, meanwhile, will continue to scoop up property. While inventory is tight, interest rates remain low, driving buyers who are able to afford record-high prices into the market.
Educating underserved communities
JCHS makes clear that it believes government intervention is necessary to address disparities that were deepened by the pandemic. This includes the creation of affordable housing and other initiatives that would benefit lower-income renters and homeowners.
Beyond government policy, lending institutions are well-positioned to educate underserved demographics. By connecting with these potential borrowers, lender can earn their trust and business while helping to spur meaningful changing in homeownership rates.
What does borrower education look like? First, lenders can ensure borrower have access to resources that spell out the various lending options available to them. Families of color and other underserved borrowers, for instance, often don’t have the context or knowhow to access resources that can help them.
“Many borrowers don’t know you can buy a home [by putting] only 3% or 3.5% down,” said Laurie Goodman of the Urban Institute. “Black and Hispanic borrowers are oftentimes less familiar with the process because they’re less apt to have others in their family who have bought a home.”
Presenting loan options to increase homeownership access
Families of these underserved communities often lack generational wealth that could help with a down payment and don’t have examples within their immediate circles of home-buying and homeownership. That makes it exceptionally hard for them to navigate loan options and programs that could assist them financially.
To add to that knowledge gap, very few buyers in underserved communities report being aware of down payment assistance (DPA) programs. Still, data suggests that these resources can substantially help at-need buyers. According to a RealtyTrac survey, the average saving for a homebuyer using DPA was $17,766 in total. Home buyers using DPA saved about $5,900 at closing and $11,800 over the life of their loans. According to the study, borrowers saved money when they closed. Then they continued to do so because they owed less on their mortgage and had lower monthly payments.
“There are over 3,000 different [down payment assistance] programs available in the United States, and borrowers can’t possibly be aware of all of them,” commented Goodman. “So lenders have to provide some guidance here.”
By stepping up to address these disparities, lenders will gain access growing cohorts of potential borrowers who can fill their loan pipelines for years to come. And beyond the business these connections bring, lenders will also ensure these communities benefit from the life-changing advantages of homeownership.