Black Homeownership Is More Expensive According to New MIT Study
Currently, American mortgage rates are at an all-time low. However access to those rates are incumbent upon excellent credit scores and a 20 percent down payment. Previous data has shown that on average, Black Americans have lower credit scores and less savings. New research released by MIT earlier this month indicates that for Black Americans, the dream of homeownership is more costly to become a reality. Inequities in mortgage interest payments ($743 annually), mortgage insurance premiums ($550 annually), and property taxes ($390 annually) ‘make it impossible for Black households to build housing wealth at the same rate as white households’ according to the study.
Former head of the Federal Housing Administration and current executive director of the MIT Golub Center for Finance and Policy, Edward Golding, said “While mortgage costs are determined by markets to some extent, there is a great deal of public policy that influences these rates, especially as it impacts people of color. We can and should address these issues at a policy level and start now to eliminate the large wealth gap between Black and White homeowners that we created in part through our current mortgage system.”
Golding, who co-authored the study, emphasized that added mortgage expenses prove even more costly over time for Black Americans. “The small differences compounding over the life of the mortgage and during home ownership can add up,” said Golding. “Even if it is a few hundred dollars a year here and there, it can amount to another year’s salary families would otherwise have.”
For those African Americans who do achieve the dream of homeownership, high mortgage rates can turn it into a nightmare and opportunities to refinance are limited at best. The MIT study found that when the Federal Reserve Board lowers interest rates, white homeowners experience significantly greater benefits. Researchers estimated that ‘the lack of refinance opportunities results in black homeowners paying approximately another $475 per year more than white homeowners, which results in a loss of retirement savings of nearly $20,000‘.
Golding said, “These [Black Americans] are the homeowners who we should care about the most and you reduce the risk in the system when you have lower payments.” So how can homeownership become more accessible for all? The MIT research team suggested eliminating risk-based mortgage assessment through uniform pricing, government insurance covering payment in case of unemployment or disability, and tax credits given to first-time homeowners to supplement down payments.
For the full MIT report, Click HERE.