- Despite affordability challenges, the share of Black households buying their first home is on the rise, increasing to 63% in 2023 from a record-low 35% in 2021.
- The best markets for Black home buyers are markets with the fewest restrictions on home-building activity. Removing roadblocks to housing construction could level the playing field.
- Black households are 29% more likely than others to potentially be able to move and buy a first home because of remote work opportunities.
Homeownership is a critical factor in reducing wealth inequality, particularly for Black households. Unfortunately, fewer than half of Black households own their homes, and the rapid rise in home values during the pandemic coupled with a doubling of mortgage rates have further strained housing affordability, keeping many potential Black homeowners on the sidelines.
While worsening housing affordability hurts everyone, it has disproportionately impacted Black households. This is because Black households earn less on average, meaning they can have less purchasing power to overcome upward price pressure from stricter building regulations that limit development.
The typical Black household could afford just 18% of homes for sale on Zillow in 2024. This is compared to 38% for white households that year. Before the pandemic, those numbers were 34% and 61% for Black households and white households, respectively. Despite a steeper decline in the share of home listings that were affordable to the median earner, Black homeownership increased more than white homeownership during that same time period.
The markets where a typical Black household could still afford the monthly mortgage payment were St. Louis (30.3% of listings were affordable in 2024), Birmingham (29.5%) and Memphis (29.0%). Those were followed by Detroit (28.6%), Baltimore (25.8%), Pittsburgh (23.7%), Cleveland (22.8%), Indianapolis (22.0%), Atlanta (19.2%) and Oklahoma City (18.8%). The worst markets for potential Black home buyers were on the West Coast in California and in Seattle.
In 20231, the Black homeownership rate stood at just 45%, which is significantly lower than the 65% U.S. average, and even lower than the peak Black homeownership rate of 49.7% set in 2004. Despite seeing faster income growth in Black households than other groups, access to homeownership for Black households continues to lag, highlighting the other significant barriers to homeownership, such as credit history and access to savings for a down payment or closing costs.
A Zillow analysis of Home Mortgage Disclosure Act (HMDA) data shows that Black mortgage applicants were more likely to be denied than other applicants, primarily due to credit score issues. In 2023, 24% of Black applicants were denied a mortgage, compared to just 13% for all applicants on average, and 43% of denials for Black mortgage applicants were caused by a lack of credit history.
In addition to determining mortgage approval, lower credit scores lead to higher mortgage rates, exacerbating affordability challenges when borrowing costs are already a barrier. Before mid-2023, applicants with lower credit scores could face monthly mortgage costs that were over 50% higher, due to unfavorable rates. However, starting on May 1, 2023, loans backed by Fannie Mae and Freddie Mac began charging a lower risk penalty fee for borrowers with lower credit score, which is a start to leveling the playing field across different races.
There are other positive trends.
More Blacks became homeowners during the pandemic. The share of Black buyers that bought their first home has increased, suggesting that Black households haven’t given up on homeownership in spite of the affordability challenges.
Remote work also helped. While remote work benefited everyone with a greater ability to move to a more affordable housing market, if desired, it had a disproportionately larger impact on the lowest-income households. Zillow research shows that Black renters were 29% more likely than other renters to potentially be able to move and buy a first home thanks to the rise in remote work. When families are able to move to more affordable markets, their odds of becoming homeowners also improve.
Black home values have appreciated faster than those of any other racial group since the start of the pandemic, rising by 42.5% since February 2020 and giving the typical Black homeowner nearly $84,000 in equity gains. This has provided a substantial boost in wealth for Black households, although the overall value of Black-owned homes still lags behind the typical U.S. home.
Addressing these disparities requires intentional policies and interventions that target the barriers keeping Black households from homeownership. While the most obvious solution to a national housing availability crisis is to remove roadblocks to building more homes, efforts such as allowing rent payments to count toward credit history and increasing access to traditional financial services in predominantly Black communities can help close the racial gaps in credit and financial access, paving the way for more Black renters to become homeowners.
[1] The latest year available in IPUMS-USA