Black and Hispanic homebuyers are significantly more likely to get turned down for a conventional mortgage loan, according to new data.

A recent analysis from Zillow shows that in 2016, nearly 21% of black applicants were denied a conventional loan, while 15.5% of Hispanics were. Those rates are down from 2007, when black applicants were turned down 34.3% of the time and Hispanics faced denials on 30% of applications. The national denial rate is down, too, dropping from 18% in 2007 to 9.8% in 2016.

Still, even with the reduction over the past decade, a major gap exists between loan denials for white and Asian applicants and those of black and Hispanic applicants. In 2016, Asian applicants were denied a conventional loan in 10.4% of cases — slightly more than the national average — and whites in only 8.1%. The gap widens even further in certain geographic locations — particularly in the North and on the Atlantic Coast.

Where Denials Are Highest

Conventional loan denials for black applicants are the highest in Miami, where 25% of applications are turned down. Black denial rates are also above 20% in St. Louis; Tampa and Orlando, Florida; New York City; Philadelphia; and Detroit.

For Hispanic borrowers, denials are highest in Columbus, Ohio, with 22.2% of applications denied. Hispanic denial rates were above 15% in Orlando, Miami, Philadelphia, Chicago and New York City.

Though Asian borrowers have a statistically lower denial rate nationally, there are several metros bucking that trend. In Miami, for example, Asian buyers get turned down 18% of the time, while those in nearby Orlando face a denial rate of 16.3%.

The Homeownership Divide

The gap in denial rates isn’t the only problem facing minority homebuyers. Black and Hispanic borrowers also have significantly lower buying power than white buyers. In fact, according to Zillow Chief Economist Aaron Terrazas, black buyers had the least purchasing power of all races last year, able to afford just 55% of all homes for sale, while white buyers could afford nearly 80%.

That steep discrepancy in buying power is widening the divide in homeownership among the races. In fact, it’s now worse than a full century ago. In 1900, the disparity between black and white homeownership was 27.6%. Now, it’s 30.3%.

According to recent data from the Urban Institute the racial disparity in homeownership rates is highest in cities in the Northeast and Midwest.

Minneapolis claims the biggest divide, with a 50% difference between black and white homeownership rates. In Albany, New York, the disparity clocks in at 48.8%, and in Buffalo, it’s 45.5%. Salisbury, Maryland, and Bridgeport, Connecticut, also show a big divide between the races.

The smallest divides between black and white homeownership are in the south, according to the Urban Institute’s research. In Killeen, Texas, the disparity is just 14.4%, while Fayetteville, North Carolina, sees a gap of 17.4%. Charleston, South Carolina; Austin, Texas; and Augusta, Georgia, also had some of the smallest gaps in homeownership rates in the nation.

But even in cities with above-average black populations, whites still outnumber black households when it comes to homeownership.

“Not one of the 100 cities with the largest black populations has a black homeownership rate close to the white homeownership rate,” the study reported. “Even in places where black households are the majority, like Albany, Georgia, the gap persists.”

If loan denials stay at current rates, it will continue persisting, too.

“For the large majority of home buyers, getting approved for a loan is the first step on the road to homeownership, and these continued disparities represent an on-going barrier to housing and social equity in America,” Terrazas said.

Why the Disparity?

When it comes to the widening gap in homeownership, there are dozens of factors at work, but according to Doug Ryan, senior director of affordable homeownership at the Washington D.C.-based nonprofit Prosperity Now, both lower income and lower credit are contributing to the problem.

“Because of income disparities, black borrowers have fewer housing choices, especially in expensive markets,” Ryan said. “This will drive up debt ratios that could disqualify them. Also, black and Latinos generally have worse credit — measured in a classic way — than whites. Twenty-five percent of blacks, versus 65% of whites, have prime credit scores.”

In fact, according to Zillow’s data, white households earned about $21,000 more than black households last year in 48 out of the nation’s top 50 markets. In 2017, white households could afford a home 75% more expensive than black households. On average, black households could afford just over half of all U.S. home listings last year, while Hispanic households could afford 64.9%. White and Asian households could afford 77.6% and 85.2%, respectively.

In the long term, Ryan said this disparity in homeownership — and housing affordability — could have a significant impact on wealth-building opportunities for American minorities.

“I think the future is bleak,” Ryan said. “We have lost a generation of new homeowners, and with it, the community efficacy that comes with ownership. We are losing intergenerational wealth, already a challenge for black and Latino families. And we have lost a vast supply of single-family homes to the rental market, which means fewer homes to buy. For minorities, the trend will be devastating.”

Courtesy of forbes.com and credit to Aly

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