Despite the housing bust and its lasting implications, owning a home nevertheless remains one of the most common ways for American families to build wealth—white families, predominantly. The homeownership rates of black and Hispanic Americans lag dramatically behind that of white Americans. These minority groups are much less likely to purchase a home, and if they do, they are less likely to have homes that appreciate in value. They’re also more likely to lose their homes through foreclosure. These gaps help explain, in part, the staggering disparity in wealth between whites and people of color.
The reasons for this are not solely practices of the recent past, such as redlining. Today, home loans are consistently more expensive for black and Hispanic buyers than they are for white buyers. Why? Because banks and other lenders direct these groups toward high-risk, high-priced products. The result is, in part, that blacks and Hispanics are less likely to own homes in general, and additionally that when they do obtain home loans, those loans are often a more expensive and risky proposition—think of the subprime loans that tanked the housing market—which can increase the chance of financial ruin and default.
Why is this? Why are blacks and Hispanics targeted with these risk financial products? Perhaps these differences stem not from the borrowers’ race but from their worse financial circumstances, a reason some would say justifies the higher rates. Not the case, according to a new study from the National Bureau of Economic Research, which finds that race and ethnicity matter substantially on their own.