On the surface, things look pretty swell for the Chicagoland housing market: home sales are up 4.8 percent; median sales price has risen even more, jumping 6.7 percent; time on market is down nearly 12 percent; and both foreclosure inventory and serious delinquencies are down by more than 25 percent.
Those are all very positive trends, and would seem to be clear evidence of a housing recovery, one that has slowly lifted the local economy out of a long, lingering downturn. Except there is a problem with that narrative: huge swaths of Chicagoland – specifically, majority Black communities – remain mired in the effects of that downturn, and are not enjoying the benefits of the market recovery.
That was the troubling finding of a new Zillow analysis, which concluded that across the country, negative equity rates in majority Black communities are considerably higher than in majority white communities. Here in Chicagoland, the divide is especially pronounced – negative equity in Black neighborhoods is 28.2 percent, more than double the 13.8 percent of white neighborhoods.
And as our chart below shows, Chicagoland is hardly alone when it comes to this sad reality:
|Metropolitan Area||Q3 2016 Negative Equity Rate||Negative Equity Rate in Majority White Communities||Negative Equity Rate in Majority Black Communities|
Predatory lending during the housing bubble
How is it that negative equity not only remains so elevated in Black communities, but also at double the rate of white communities? The ghosts of the housing bubble provide the answer.
As the ACLU and other organizations have reported, lending institutions of all sizes targeted minority communities during the bubble years, steering homebuyers towards risky subprime mortgages that were easier to securitize and sell to Wall Street speculators. As a result, home prices ballooned to superficial levels in those communities, and when the housing market collapsed in 2007 and 2008, prices crashed with equal fervor – so much so, in fact, that even at the end of 2016, prices remained considerably lower than their boom-era peaks from a decade before.
The ACLU summed it up succinctly: “Deeply rooted economic inequality … fueled some of the most harmful lending practices, allowing financial institutions to engage in discriminatory and predatory lending that accelerated the financial collapse. Looking back, it is clear that racial discrimination played a pivotal role in the housing market crash.”
Black homeownership in post-bubble America
Zillow’s report is only the latest evidence of the housing market’s profound inequality, which is apparent in every stage of the market:
- Homeownership rates vary by an astonishing degree. According to recent research from Pew, the homeownership rate for white Americans is nearly 72 percent, while Black homeownership is 30 percentage points lower at 41.3 percent – which is itself down 16 percent from where it was in 2004.
- Black mortgage applicants are denied at more than twice the rate of white applicants, which has long been the case.
- Savings – which comprise the vast majority of down payments in the U.S. – are also astonishingly unequal. White households, for instance, would be able to cover one month’s income with liquid savings; Black households, by contrast, would only be able to cover five days. Furthermore, the bottom 25 percent of white households would have $3,000 if they liquidated their assets, but a quarter of all black households would have less than $5.
So what’s to be done, in the face of such stark inequities? In early 2016, Chicago Agent interviewed Ron Cooper, who at the time was the president of the National Association of Real Estate Brokers, the nation’s oldest minority trade association. Citing recent research on negative equity, Cooper concluded that housing’s problems were so considerable that transformative action was necessary.
“The Chicago Tribune recently reported that many homeowners in Chicago’s south suburbs doubt they will ever regain their equity after the downturn,” Cooper said. “I’m looking at those statistics before our Mid-Winter Regional Conferences, and I want to really address how someone buys a house in Chicago for $135,000, yet today, that same house is worth $29,500. That really speaks to the fact that the government needs to step in. Something needs to happen.”
Whether or not such action will be taken during a Trump presidency – especially with Ben Carson overseeing HUD – remains to be seen.