Newswise — ITHACA, N.Y. – New forms of racial inequality make homeownership a risky investment for African-Americans, according to a new study by Cornell and Rice University sociologists.
“Despite important movement toward racial equality in access to homeownership, there is growing racial inequality in the ability to remain a homeowner,” said co-author Matthew Hall, a demographer and Cornell assistant professor of public policy in the College of Human Ecology’s Department of Policy Analysis and Management.
The peer-reviewed study, to be published in the August edition of Social Problems, examines racial inequality in transitions out of homeownership over the last four decades.
The racial gap in the likelihood of changing from owning to renting a home began to widen in the 1990s. During the next two decades, African-American homebuyers were 45 percent more likely than whites to transition out of homeownership. The findings point to a historical shift in the racial stratification of American housing markets, from overt exclusion to, more recently, market exploitation.
“The 1968 passage of the Fair Housing Act outlawed housing market discrimination based on race,” said lead author Gregory Sharp, a postdoctoral fellow in Rice University's Department of Sociology. “African-American homeowners who purchased their homes in the late 1960s or 1970s were no more or less likely to become renters than were white owners. However, emerging racial disparities over the next three decades resulted in African-American owners who bought their homes in the 2000s being 50 percent more likely to lose their homeowner status than similar white owners.”
These inequalities in homeownership exit held even after adjusting for an extensive set of life-cycle traits, socioeconomic characteristics, characteristics of housing units and debt loads, as well as events that prompt giving up homeownership, such as going through a divorce or losing a job.
Congress removed interest rate caps on first-lien home mortgages and permitted banks to offer loans with variable interest rate schedules in the 1980s, and the subprime market mortgage market boomed. Both events contributed to the elevated risk of blacks losing homeowner status. In 2000, African-Americans were more than twice as likely as whites with similar incomes to sign subprime loans; among lower income blacks, more than half of home refinance loans were subprime.
“African-American homeowners’ heightened subprime rates were not only due to their relatively weaker socioeconomic position, but also because lenders specifically targeted minority neighborhoods," Sharp said.
Hall and Sharp hope the research will prompt further analysis of additional factors that may contribute to racial disparities in the exodus from homeownership, such as household wealth and residential location.
The study, “Emerging Forms of Racial Inequality in Homeownership Exit, 1968-2009,” available at http://bit.ly/1rDgkmL, was funded by a National Institutes of Health grant from Pennsylvania State University's Population Research Institute Center.