The Relationship Between Race, Ethnicity and the Housing Market Recovery

 

According to the Federal Reserve's triennial 2014 Survey of Consumer Finances, the percentage of American families owning a primary residence dropped from 67.3 percent to 65.2 percent between 2010 and 2013, continuing a trend that has been in place since 2004 when the homeownership rate was 69.1 percent.  Over the three year period, the median and mean value of primary residences fell in real terms (inflation adjusted) by 7 percent and 6 percent respectively; this decline is particularly surprising given the widespread perception that housing prices took off between 2010 and 2013 in nominal terms.  

 

Now, let's look at a study by the Economic Policy Institute that relates the recovery of home prices and its relationship to ethnic and racial background of the homeowner.  Here is a graph showing the percentage change in median home values by race and ethnicity between 2004 and 2013:

 

 

Between 2004 and 2007, all three groups (whites, blacks and Hispanics) saw the value of their homes rise as follows:

 

Whites: +10.4 percent

Blacks: +30.1 percent

Hispanics: +29.0 percent

 

During the housing market plunge between 2007 and 2010, all three groups saw the value of their homes decline as follows:

 

Whites: -16.5 percent

Blacks: -23.6 percent

Hispanics: -28.4 percent

 

Once the housing market started to rally between 2010 and 2013, there was a substantial difference in the level of price recovery for each of the three groups as follows:

 

Whites: -4.6 percent

Blacks: -18.4 percent

Hispanics: +3.7 percent

 

Since the respondents to the Federal Reserve Survey of Consumer Finances reported their highest home values in the 2007 survey, here is what has happened to housing prices for each of the three groups:

 

Whites: -20.3 percent

Blacks: -37.7 percent

Hispanics: -25.8 percent

 

In the past, the homeownership rate and changes in home values for both African Americans and Hispanics moved together.  Both groups had a homeownership rate of 44 percent in 2013, suggesting that the significant difference in housing prices is related to the geographic timing of the housing recovery.  Hispanic families tend to make up a larger share of the population in the western region of the United States where the largest increase in home values took place during 2012 and early 2013 as shown on this chart for Los Angeles:

 

This contrasts with the recovery of real estate valuations in the midwestern and southern regions of the United States where African-American families make up a larger share of the population as shown on this chart for Chicago:

 

It is rather surprising to see that there is a significant difference in how the housing market recovery has impacted homeowners based on their ethnic and racial backgrounds and how uneven the recovery has been.  A 2015 study by Elora Raymond, Kyungsoon Wang and Dan Immergluck examined zip-code-level home value data for the period from 2001 to 2014 in the Atlanta housing market.  The authors found that many black neighbourhoods, even those with lower degrees of poverty, exhibited steep price declines with only modest or no recovery following the crisis while many predominantly white neighbourhoods experienced far less price volatility during the housing boom and bust and that many have more than recovered from the modest price declines that they did experience.  While the research does not directly address the reasons behind these patterns, this data also suggests that there is a strong correlation between racial groups and the recovery of the housing market.