Color of Money: The racial wealth gap in America

Jun 18, 2020

Welcome to a weekly discussion about your money hosted by Michelle Singletary, nationally syndicated personal finance columnist for The Washington Post.

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Thanks for joining me today. I've got two great guest from the Urban Institute. In addition to your questions about personal finance, they are here to talk about one of my recent columns: Coronavirus could widen black wealth gap

Let's get started.

Excited to be with you, Michelle! Thanks for inviting us to join today's chat. -Alanna @myhomematters

Hi Michelle, I'm thrilled to report that after several years, I paid off my credit card debt month this month. Along the way, I've contributed to my retirement account, built a life-happens fund, and I'm building up my emergency savings. Thanks for all your clear-eyed yet compassionate advice!

I think this is a good place to start.

Wow! So proud of you. And I know having that debt monkey off your back -- especially given the current economic crisis -- must be such a great feeling. 

Do you think the bill will be signed into law?

Hi, given the current political unrest and Trump's attention to the Bolton book, no. 

The GOP has said it's a no-go. 

As a self-employed person who expected to earn lots more than I did, I overpaid my estimated taxes for 2019 by a lot. I filed my taxes in February, hoping to see my refund quickly. It's June, still no refund. I expect to make less money this year but still have to pay 2020 quarterly estimated taxes. Should I attempt to pay them even though my refund does not appear to be forthcoming - or do I sit on my payments until the refund shows up? I do my own taxes on TurboTax and it's always simple, but this time the IRS hasn't done it's part. I check the government website which shows they've received my filing and it's processed, but still no refund.

This may be the year to hire a tax professional to look at your situation and give you advice. What I can tell you is that the IRS is not fully operational right now because of cover-19. Much of the agency's staff are still at home and not working on taxpayer issues because they can't access the information from home. I know this is all very frustrating. I've heard from people who electronically filed in April and May and have received their refunds. Others filed in Feb. and March and they are still waiting. Put your questions to a professional who can advise you of the consequences. 

Can we hear from the housing experts?

They are working on answers now. 

The Black homeownership rate has increased somewhat in each of the last three quarters. Are you encouraged by this development?

Generally speaking, the increase in the black homeownership rate is a good thing. That being said, the dataset showing that increase is considered more volatile than other and also reputable sources of information. In addition the gap between the black homeownership rate and those of others, such as Whites remains wide. So while it has the potential to be a positive sign, its not a victory.

https://www.urban.org/urban-wire/sudden-increase-black-homeownership-too-good-be-true

Great question and I will add to Michael's response. These increases are still incredibly disappointing and terribly small. The black homeownership rate fell over 5 points after the great recession below 42% and has really not recovered since while the rates of ownership for all other racial/ethinc groups has seen increases in recent years. The devastating blow to black homeownership from the foreclosure crisis has not come close to recovery. So at the moment, NO, I am not encouraged. We need to see massive investment, new programs and renewed focus on getting more black credit worthy renters into homeownership. In many places around the country black families have the income and credit to support buying a home, yet they are renting for a higher rate. Work on building and renovating affordable homes, ensuring more equitable access to the housing finance system including more conventional lending by Fannie/Freddie and providing more resources for down payment to assets families who may not have loads of cash in savings but are otherwise ready is where we need to focus. 

He/him Minnesota (debt free since 2019) My recently divorced son is now renting an apartment with a long-time friend. He thinks renting is a waste of money because he doesn't get anything out of the rent, only the landlord does. He wants to buy a property in the next year so he is building equity. He is working and is also starting a 2 /12 year graduate school program this summer. He has student loans for his undergrad (~$30,000) and a car loan. He thinks he can buy a property using a first-time buyer program with the city/county and pay less than his rent. Any thoughts you or your guests can offer on how to help him realize that the costs of home ownership extend to more than just PITI? Thanks for your suggestions.

The sooner you buy the sooner you start building equity. We have done research that shows in many markets across the country the monthly cost to own a home is lower than monthly rents.  My son was renting with friends for quite some time after college and I encouraged him to buy a house and rent the rooms to those same roommates. He has built up over $50K in home equity since he purchased the home, and his entire PITI is covered by his 2 housemates. Home prices have been consistently stable and rising in many parts of the country. The sooner he buys, the sooner he enjoys the upside! Look into down payment assistance programs in your area and good luck!

I would like to hear everyone's thoughts on racial disparities in homeownership, and your article. What is the prognosis for the future? What needs to happen for the trends to change?

Our report on the disparities shows consistent pattern through history that has continued to keep people of color down. I am hopeful for the future, as we all get more awareness and understanding of the systemic and structural barriers, begin to break them all down, and reall focus on race conscious policies for housing in the future. Housing is a human right, and this pandemic has shown us how essential it is not only for shelter but for our health to have a safe and stable home. Change must start with our federal policies, and must also be strong at the local/state level to really see the trends change.

I have hope. The current protests are bringing to the table a lot of issues that this country as long avoided. But policy is key. More transparency in reporting about loans and rates given to blacks and a look at how homes are appraised. 

Prediction on access to financing for affordable housing developers?

Good question. Generally speaking credit access to single-family developers has been tightening recently.  On the other hand, the stock of "acquisition, development & construction" loans (AD&C) held at banks continued to expand in the first quarter of 2020. With respect to LIHTC, reports I have read indicate that deals prior to COVID appear to be getting done, but there is more caution now.

https://eyeonhousing.org/2020/05/credit-for-builders-tightens-virus-blamed/

http://eyeonhousing.org/2020/06/adc-loan-volume-expands-during-a-tough-quarter/

https://www.housingfinance.com/finance/lihtc-deals-face-increased-scrutiny-amid-covid-19_o

I have a credit where I had carried a decent balance for a number of years. I paid it off more than a year ago and only use it at Costco and pay it off every month. Last week I got a letter from the credit card company telling me that because I don't use it enough, they cut my credit line in half, and it was a fairly substantial credit line. I won't miss the available credit. I have a decent FICO score, so I wonder how many points I just lost.

Many lenders are tightening credit right now because of the pandemic. Unless you have outstanding balances on any other credit cards you shouldn't see a drop in your score because of this cut in your available credit. 

What examples of "policy work" can you suggest that would correct inequities by race and reduce the homeownership gap and close the wealth gap?

At the federal level, one policy that we must strengthen RIGHT NOW relates to the implementation and enforcement of the Fair Housing Act and Affirmatively Furthering Fair Housing laws. Stronger enforcement and accountability to ensure access to credit, lending and fair real estate practices, including getting bias out of appraisals based on bad historical valuation practices. Also policies that look to provide more investment in historically disinvested places and people, such as down payment assistance grants or first time homebuyer credits that incentivize homeownership and also help families build wealth are key. At the local level its time to take a hard look at zoning and land use laws that are keeping housing unaffordable and locking families out of communities or making it very difficult to build affordable housing types in certain places. These are examples of federal and local, and we need both to close the gaps and begin to build wealth.

I am awakening to the (undeserved) privilege my white skin affords me compared to people of color. How can I, as an individual, help foster positive change and equity in housing and other financial matters?

Speak out! Talk to your neighbors, family and friends. Support local efforts to ensure that housing is affordable and accessible in your community. Stay actively engaged in helping others see where there is bias. One of the biggest challenges in housing is that people are locked out of neighborhoods because the residents say 'Not In My Backyard' supporting affordable housing in the community but not on their block. We have to open up our minds and break down the neighborhood barriers.

Your Sunday column discussed differences in housing by race. I remember hearing a talk years ago that African Americans get lower returns for the "same" house: lower appraisal, higher rates etc. Have things changed? Is there anything a home buyer can do? I was able to shop around for a better rate, but some of these variables are things the buyer cannot control.

Our paper as well as work from other scholars focus on this issue of the value and price. These issues remain major barriers as evidenced in the devaluation of neighborhoods that are still highly segregated, as well as through pricing adjustments that get put onto loans that have risk characteristics associated with where the property is located or borrower characteristics. That results in a higher priced mortgage. So these have not gone away and these are precisely the areas of systemic change that future policy must work to address.

I'm very familiar with appraiser bias. My home in one county over -- majority white -- would likely be worth twice what it's valued at in my majority black neighbor.  

What about programs like Habitat for Humanity? Would you recommend them for first time homebuyers. Are there loopholes that low-income people should know about?

Programs like Habitat and many other affordable development programs are great options for low income homebuyers. I recommend first time buyers work with local housing counseling agencies and really learn the process, the financing options, and more about the down payment assistance programs available in your area. State Housing Finance Agencies are also a great resource, as are city/county housing agencies. There are usually way more resources available than people  realize, realtors and lenders may not know of them either, so its important to ask lots of questions and be an informed consumer before making your first home purchase. Housing counseling networks like Neighborworks can be a first stop when you think you are ready to buy a home.

I would like to add that when applying for such programs read ALL the fine print. There are often stipulations such as you may have to live in the home a certain amount of time, that you can move and rent it or you may have to give up some equity when you sell. I used a first-time homebuyer program when I became a homeowner in my early 20s (I only rented for one year - ever). There were very generous benefits -- downpayment assistant and low interest rate. But I couldn't rent the condo. If I sold the condo, I would have to pay back a certain amount of money. However, I could add back in cost of selling and any improvements that I had made. Just know what's in the contracts.

It seems like cities, such as San Francisco, may now be seeing a decline in residents as people are able to move out and work anywhere as a result of the COVID crisis. Will this help alleviate high costs of homeownership and create opportunities for people of color to own homes -- those who have been locked out of opportunities.

Great question. There could certainly be a possibility that home prices fall (or home price growth slows) in response to less demand. On the other hand, housing supply remains very low in part because of the costs builders face to complete a new home. This might weigh on supply at the same time.

At the same time, depending on the population that might leave, if they have incomes high enough, affordability in their destination could be exacerbated.

Facebook recently mentioned that it may consider lowering salaries for those that permanently leave the area to take advantage of lower prices elsewhere. It will worth watching whether this becomes a broader trend.

https://www.marketwatch.com/story/facebook-employees-may-face-pay-cut-if-they-move-to-cheaper-areas-to-work-from-home-2020-05-21

Hello this is Melvin Milon I was born and raised in the City Of South Bend Indiana and have been for the past 20 years been observing the gentrification that has been going on there the issue with self being is they are gentrifying there people out by the high cost of homes the income of livable wages for blacks does not match the landscape of new homes that are appearing in these urban communities. The city has played a huge role in this process by not properly having blacks have accessibility to the jobs that would help create sustainable living conditions they are in South Bend. I have many examples of this based on my work there in South Bend and some of the programs I am trying to establish to a Raticate this generational curse of wealth transference. Home ownership is important in order for blacks to even have a voice in the community instability for families I am right now in the process of creating that stability.

All excellent points. Homeownership does help stabilize neighborhoods and absolutely helps in giving you a voice in local politics. 

Perhaps you addressed this previously but had an in-law pass away in February. We are executors and reported the information but recently received the Trump letter saying a stimulus check was on the way. The letter was addressed to the deceased and had DEC after the name. Two questions, should there be a check and it's been a month since got the letter and no sign of it. What are next steps need to take to get or return.

The IRS says such checks/debit cards, direct deposits have to be returned. For now I wouldn't worry about it. It's going to take months for the agency to catch up to checks not received, etc. Just keep all the paperwork should you get another letter from the IRS. 

Read this column for more information: IRS says $1,200 stimulus payments sent to dead people have to be returned

 

Are there any organizations or federal programs that provide down payment assistance to address the gap in home ownership for African Americans? If there are not federal programs, are there any bills along these lines? I would love to know how we can advocate for housing assistance (or other policies) to address the systemic racial discrimination in the housing and mortgage industries.

Yes, there are down payment assistance programs available in every state. Many of these programs are state or locally run. I recommend checking out your local housing finance agency to learn more about these resources. We did a feature and report on barriers to accessing homeownership and you can find out some additional information about lending in you state using this interactive tool:

https://www.urban.org/policy-centers/housing-finance-policy-center/projects/access-and-affordability-interactive-map-and-research-3

There have been many proposals on federal down payment and tax credit proposals that have not yet been signed into law. I am hopeful that in the future we will see a deeper focus on housing from the federal government and efforts to right the wrongs and address the deeply damaging legacy of racial discrimination that has stripped unimaginable amounts of wealth from black families.

Michelle, I generally really like your advice and my husband and I subscribe to many of your ideas. I want to take issue with one thing you said in a chat 2-3 weeks ago. In talking about your son and his job, you said he accepted a job offer with a local firm that wasn't exactly what he wanted but he needed a job. Then a better offer came around and just before starting, he rescinded his acceptance of the first job. In most industries, this would absolutely not be considered appropriate to do and would burn a bridge as the first comany is now left in a bind. Now, there are certainly circumstances where it makes sense to burn the bridge and take the better job (as it may have been for your son), but to suggest that people should do this without really thinking about the consequences is irresponsible.

I appreciate your feedback. But you should know this happens quite a bit. It is not irresponsible to look out for your own interests. Is it fair for companies to accept resumes, conduct interviews and then never get back to folks about not getting the job? And I never said take a second offer without considering the consequences. I believe I wrote that we talked to our son, we weighed the issue and we made sure he composed a note to the company explaining the situation and apologizing for backing out. The HR person responded with a very nice note and wished our son well. 

If someone in HR doesn't get this and hold a grudge that says more about that person than the person who has a right to put themselves first in something as important as a job selection. 

I'm a Realtor in MoCo and I read your report so disheartening yet truthful. Why is it that systemic racism is so prevalent in the Real Estate Industry today given the fair housing training Realtors get? And the every two year training is not enough because it doesn't go way deep into inequities in homeownership between black and white families. The history isn't being taught. I am going to be a trainer so I can teach the true meaning of Fair Housing.

Thank you for reading our report.The history of explicit systemic racism extends to other areas of the homebuying process. Research suggested that there may be a degree of it in the appraisal system prior to the Great Recession. The combination of issues throughout the entire process contributes the results that  we see today. Thank you for the actions you plan to take on this important issue.

https://journals.sagepub.com/doi/full/10.1177/2332649218755178

Great question. There are real challenges and barriers that Real Estate professional have to grapple with when it comes to discrimination. Its unconscious bias in so many ways. I have experienced it personally, and issues in terms of who gets to see what houses, which houses are shown in certain neighborhoods and so many other challenges still exist. There definitely need so to be more mandatory training, and a commitment to the history to understand the role real estate industry plays today in this issue. I want to lift up work the Urban Institute has been doing the past 2 years with the National Association of Realtors (NAR) , the National Association of Real Estate Brokers (NAREB) and the National Association of Hispanic Real Estate Professionals as well as many others to lift up this history. We worked together with NAR and NAREB and a number of other national organizations to develop a 5-point framework for reducing the black homeownership gap, and continue to do outreach work with local real estate boards and others to not only educate, but work toward real meaningful change to practices that have been historically damaging.

Check out: https://www.urban.org/policy-centers/housing-finance-policy-center/projects/reducing-racial-homeownership-gap/five-point-framework

Buying a home might be the right move for many people, but not everybody all the time. If you don't plan to stay there for several years, if you're putting money into a mortgage that could go to a 401K or IRA, if you're going to have trouble paying for maintenance and repairs, if the only house you can afford requires a longer commute than you could enjoy by renting, etc., etc., it might not be the smart way to go. There's no shame in renting, especially for a younger person who might be thinking about changing jobs or moving to another region.

I actually agree with you on this. Homeownership is right when it's right for you. And as I've often said you are not a financial failure if you rent. 

What policies do your guests propose to undo the effects of hostorical redlining and how best to get these policies enacted or established?

I think there is a reckoning that needs to happen today. That redlining is talked about as an issue of history but it is actually still present today. Just last week in Chicago, WBEZ released a report that speaks to the modern day version of redlining that persists in lending. You can find it here: https://interactive.wbez.org/2020/banking/disparity/.

We have to tackle this head on. We have to first acknowledge that racist practices still exist in our real estate markets. Then we must look at intentional policies to UNDO this. This part is really hard but we have to look at the history and understand that the government did intentional lawful policy that helped white households in America buy and build homes in the past. I call that a head start. We now need to do the same for those that have been left behind. I recommend you read a book by Richard Rothstein called the Color of Law which talks about this history.

 

To UNdo the damage that continue

My daughter received notice she would get the $1200 and the IRS says it was mailed on May 15, However, she lives in Costa Rica, and that is the address on her tax return. The USPS says due to flights not going in CR mail will not be delivered. How will she get here check? And, if it was mailed, where did it go? She has submitted her bank info and mailed in a change of address form for our US address.

The reality is the check may literally be in the mail meaning hold up at a facility waiting to be delivered. 

Read this column on how to put a trace on a stimulus payment

Didn’t get your stimulus payment? Here’s how to find it.

I feel like you've answered this question before but for the life of me I am blanking on finding it: Where is a directory of fee-only reputable (either by certification or other means) financial planners in the DC/DMV area? Is there a trusted group that maintains a list or something?

Here's the site to look for fee-only planner.

Hi Michelle. Could you ask your guests about what steps should be taken to discuss and change and the wealth gap in terms of housing? Trying to explain to elderly people, especially elderly white people, that housing discrimination exists and that dramatically affects the wealth gap doesn’t seem to sink in.

Great question. In terms of changing the wealth gap in housing, first I think its important to note that the goals is not to lower the wealth of whites. Second, with respect to homeownership, I think about it in 2 ways, first owning a home and second the financial benefits of owning your home.

One key difference is generational wealth. That is research suggests that whites are able to share wealth with their children while for blacks that is less the case. This informs that gap in homeownership between whites and blacks even when both have a college degree.

One policy that has been considered is baby bonds for lower income people that can help to close this generational wealth gap to a degree.

However, this a policy still under debate. For example, would stoking additional demand under lower supply of housing just exacerbate affordability.

 

I hope this provides some frontier thinking in terms of ways this issue is trying to be addressed.

https://socialequity.duke.edu/portfolio-item/baby-bonds-a-universal-path-to-ensure-the-next-generation-has-the-capital-to-thrive/

https://www.urban.org/sites/default/files/publication/99251/intergenerational_homeownership.pdf

https://files.stlouisfed.org/files/htdocs/publications/review/2017-02-15/family-achievements-how-a-college-degree-accumulates-wealth-for-whites-and-not-for-blacks.pdf

Why does homeownership matter so much for wealth?

Great question! I think people get lost as we talk about homeownership as a wealth building vehicle. Our paper has a wealth chart showing net worth of families by race. What it shows is that throughout history, home equity has been the largest source of personal financial wealth for all families. It also shows that home equity makes up 56.6% of overall net worth for blacks and 66.5% for Hispanics. This is incredibly important.

https://www.urban.org/sites/default/files/publication/102320/how-economic-crises-and-sudden-disasters-increase-racial-disparities-in-homeownership.pdf

We also know that black and LatinX households do not have as much traditional savings and retirement, may not hold jobs that offer 401Ks, and are less likely to invest in the stock market so they naturally will not build up wealth as quickly in those vehicles. While there are many ways for building wealth and long term savings that we need to be continuing to focus on, homeownership remains a major catalyst for building up wealth for families, including lower income families. And the ability to own a home can be a game changer for a family and future generations who will benefit from the wealth built up.

Because Carolyn Hax is having a chat today, your column isn't listed.

But I still exist :) 

I just bought that book Alanna, thanks for reminding me to read it. Thank you Michelle for having Neal and Alanna on today. They made me a lot smarter.

You are welcome. I think they are great too. 

Thank you so much for joining me today. Lots of great questions and comments. 

Take care. Be safe. 

In This Chat
Michelle Singletary
Michelle Singletary writes the nationally syndicated personal finance column, "The Color of Money," which appears in The Post on Wednesday and Sunday and is carried in more than 120 newspapers.

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Color of Money Q&A Archive
Michael Neal
Michael Neal is a senior research associate in the Housing Finance Policy Center at the Urban Institute where he conducts research and analysis on topics of racial disparities and homeownership, housing finance and the broader housing market. Michael has over 20 years of experience in economic and financial policy analysis.
Alanna McCargo
Alanna McCargo is vice president for the Housing Finance Policy Center (HFPC) at the Urban Institute where she leads development of research programming and strategy as well as key industry, nonprofit, and data collaborations for HFPC. McCargo has lead programmatic work for the center focused on barriers to homeownership, access to credit, racial homeownership gaps, and wealth equity.
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