Black Americans Won't Stop Being Poorer Unless Banks Stop Discriminating
The American Civil Liberties Union (ACLU) issued a report this month that reveals stark disparities in the amount of wealth American households recovered after the 2007-2009 recession, with white-owned homes and assets recovering more fully than black-owned ones.
These findings, including that pre-recession predatory lending that disproportionately targeted minorities continues to hurt black households more, comes as the US supreme court decided Thursday that certain housing practices that harm minorities are illegal under the Fair Housing Act.
The ACLU report, which covers the timeframe that includes the recession and the economic recovery (2009-2011), finds that average black household wealth dropped 33%, while white household wealth declined by only 12% during that four-year period. An earlier study similarly found that white household wealth dropped 16% between 2005 and 2009, while black household wealth declined by 52%.
It relied on a dataset which shows that white household non-housing wealth, like retirement accounts and savings, started to increase during the recovery period even though white household housing wealth did not return to pre-recession levels. Overall white household wealth stopped declining during the recovery period despite a sluggish housing market. While white household wealth stabilized, black households lost an additional 13% of their wealth during that period.
Blacks have always been at greater risk for losing wealth during housing market declines, because home equity comprises a much larger percentage of their overall wealth. The ACLU report notes that housing equity makes up 51% of white household wealth, but 71% of wealth for black households.
Black neighborhoods had higher foreclosure rates between 2007 and 2011 because black borrowers were disproportionately steered to higher-cost and higher-risk loans during the housing boom. Higher home-buying costs reduced black household wealth and also increased the likelihood that the black borrowers would default on their mortgage loans. Especially in light of Thursday’s supreme court ruling, the government must continue to monitor banks’ lending practices and must carefully evaluate any attempt to relax lending standards to help boost home sales.
And individually, black households can help close the racial wealth gap by diversifying their assets and investing in stocks and amassing other non-housing assets.
Even if blacks diversify their assets, though, the racial wealth gap will not close as long as homes in black neighborhoods continue to be valued less than comparable homes in white neighborhoods.
Home values in black, Latino and low-income neighborhoods have not recovered from the recession, but home prices in wealthier, white areas are now on the rise. One reason home values in black neighborhoods remain low is because of the disparate ways banks manage and maintain real estate owned (REO) homes they acquire in foreclosure sales.
A 2014 report found that REO homes in black neighborhoods are more than twice as likely to have overgrown yards littered with trash or to have broken or boarded windows compared to REO homes in white neighborhoods. White homes are marketed more heavily than homes in black neighborhoods, likely because they are better maintained.
Because homes located near poorly kept and vacant homes depreciate in value, the racial wealth gap will continue to expand if lenders continue to engage in discrimination against black neighborhoods. Fortunately, some members of Congress just called for regulators to investigate these practices.
Black families must help themselves by avoiding predatory lending and making sure their money is invested wisely. But as the high court reiterated today, the government must ensure an end to the housing discrimination that helped forge this stark wealth discrepancy.
