Homeownership: the future is Latino
More than half of homeownership growth over the past decade came from the Latino population. And it’s expected to continue. A study by the Urban Institute forecasts Latino buyers will comprise 70 percent of homeownership growth from 2020–2040, serving as the growth engine for home buying in the United States. Actually, the Urban Institute suggests that Latinos will be the only ethnic or racial group that will experience a higher homeownership rate in the coming decades.
Homeownership and the financial crisis
Since the 2008–2009 financial crisis and the collapse of sub-prime mortgages, Latino homeownership rates declined to a low of approximately 45% of the Hispanic population in 2014, according to data from the National Association of Hispanic Real Estate Professionals (NAHREP). By 2020, however, that rate had recovered to about 49%, similar to its pre-crisis peak, boosted in part by lower interest rates and an improving job market.
“Despite job losses from the COVID-19 pandemic, record low housing inventory, and a restrictive credit environment, Latinos increased their homeownership rate for the sixth consecutive year. Latinos are the only demographic in the U.S. to increase their rate of homeownership for each of the past six years”. (NAHREP)
Latinos are one of the most significant contributors to the strong growth in the homeownership rate, according to NAHREP. In 2020, almost half (43.6%) of Latino homebuyers were under the age of 34, compared to 37.3% of the general population. Today, nearly one in three Latinos is currently in the prime home-buying years (25–44), according to U.S. Census Bureau data.
Barriers that many Latino homeowners face
Latinos put an average down payment of 3.5%. Have a median reasonable credit score (of about 668) and a median debt-to-income ratio of 41%. This profile may make them more vulnerable to mortgage underwriting changes, according to the NAHREP study. The historically low home inventory and hot real estate market for first-time homebuyers may create further barriers.
The lack of diversity in the mortgage industry it’s also an obstacle for Latinos. The mortgage and real estate industry needs to hire Latinos from all levels. An understanding of the nuances of Latinos will be critical in order to convert existing mortgage-ready Latinos into homeowners.
In addition, the shrinking labor force has caused shortages particularly those that are most critical to housing production. In the construction industry, labor shortages in lower-skilled jobs have become particularly acute. According to realtor.com®, national inventory is down 39.6 percent, with an average of fewer than one million active listings nationwide in 2020.
Higher down payments
“Prospective buyers are competing with multiple bids for the same home,” Dale Baker, president of home lending at KeyBank. “We are seeing more regular occurrences of buyers willing to pay over list price, which means more money down, which again presents a challenge for those looking to buy a home in our communities.”
The pricing pressure on first-time homebuyers is especially critical in many large markets, where prices have increased by 10–15% this year. This means higher down payments and overall borrowing costs combined with interest rates that are beginning to go up.
Bottom Line
Today there are 8.3 million mortgage-ready Latinos, or Latinos aged 45 and under that have the credit characteristics to potentially qualify for a mortgage.
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