• Black applicants are denied a mortgage at a rate 84% higher than white applicants, an increase of 10 percentage points since 2019. 
• Credit history is the most commonly cited reason that Black applicants are denied a mortgage.
• Black homeownership is at 44%, far below the peak of 49.7% set in 2004. 

The Black homeownership rate has rebounded modestly from recent lows, but remains below its early 2000s peak as racial disparities in the mortgage and housing markets widened throughout the early part of the pandemic, according to a Zillow analysis of data from the Home Mortgage Disclosure Act (HMDA).

The mortgage denial rate was 84% higher for Black applicants than white applicants in 2020 (the latest year for which data is available), according to HMDA, up from 74% in 2019. Nationwide, 19.8% of Black applicants were denied a mortgage in 2020, the highest among races and much higher than the 10.7% of white applicants who are denied. Black applicants had the highest denial rates in Mississippi (31%), Louisiana (26.1%), Arkansas (26%) and South Carolina (25.8%).

And while Black homeownership has risen to 44% currently from a recent low of 40.6% reached in Q2 2019, it remains far below the peak of 49.7% set in 2004. Meanwhile the access gap between Black and white mortgage applicants continues to grow, setting Black would-be homeowners farther back from well-established wealth- and community-building benefits of homeownership than their white peers. This is partly a result of longstanding income and credit disparities that only deepened during the pandemic. 

High Hurdles

Households of color, as well as renters and lower-income households, were more likely to report encountering housing and economic challenges due to the pandemic. Black households were more likely than white ones to report a job or income loss and difficulty keeping up with mortgage or rent payments. This disproportionate impact of the pandemic on Black households has stalled efforts to close gaps in credit access, homeownership, home values, and mortgage denial rates, making the journey to equity even slower than it already was.

Prior Zillow research shows that Black renters have a larger hurdle to jump when saving for a down payment, mostly stemming from income inequality. Black home purchase applicants in 2020 had a median income of $67,000, compared to an overall median of  $83,000 for all applicants. This may help explain why Black mortgage applicants had smaller down payments in 2020 than applicants from other races. Black applicants put down a median of 3.5% on home purchase applications, just barely above the absolute minimum of 3% required for most conventional loans, and less than half the overall median down payment of 8.9% from all applicants. 

Black applicants also typically applied to purchase less-expensive homes in 2020 than applicants from other races – a median property value of $225,000 for Black applicants, and $275,000 for all applicants. The typical down payment from a Black applicant was $16,600 less than the overall median down payment in 2020. Given typical Black incomes and savings rates, our research shows it could take an additional decade for Black applicants to save the same size down payments as all applicants – highlighting just how much of a barrier down payments remain to full housing equality. 

Credits & Debits

Access to traditional financial services is another source for the large discrepancy in down payments and mortgage access. As in prior years, insufficient credit remained the most common reason for Black mortgage denials in 2020 – more than 6% of Black applicants were denied based on credit history, the cause of more than a third (37%) of all Black mortgage denials. The relative lack of traditional financial services in primarily Black communities (along with primarily Latinx communities) is an important driver of the significant gap in credit history for Black applicants. A higher prevalence of nontraditional services (payday lenders etc) and fewer traditional services (like banks) contributes to poor credit health of entire communities, particularly communities of color. 

This lack of credit leads to higher mortgage denials for credit-related reasons,[1] but even those with otherwise decent credit are impacted by the unequal U.S. financial landscape. Roughly one in seven Black households were unbanked in 2019, and more than half don’t have any savings for retirement. The fact that there are very limited (or sometimes no) traditional depository institutions in predominantly Black communities is one reason for that. Not having access to bank accounts makes it challenging to save money for lump sums like a down payment, regardless of income.  

But better credit and higher savings rates alone aren’t silver bullets that should be expected to balance the market in favor of Black mortgage applicants, even those that do manage to successfully achieve homeownership. Surmounting the huge barriers to homeownership is the first step, but hardly the last in the journey to housing parity. The value of Black-owned homes themselves has long lagged behind those of other races – in October 2021, Black-owned homes were worth 16.7% less than the typical U.S. home, which leaves less home equity for Black homeowners to tap into, all else equal. 

Silver Linings & First Steps

The silver lining is that Black-owned homes are growing faster in value than those of any other race – 1.5 percentage points ahead of all home values in October (and are expected to be growing at a pace 0.8 percentage points ahead of all home values by September 2022). That being said, with the significant difference in levels, it would still take more than 22 years for Black-owned home values to catch up to the median – assuming current trends hold.[2]

Part of this problem revolves around disparities in the valuation of homes, including appraisals and property tax rates, which are often unfavorable to homeowners of color and/or largely non-white neighborhoods. Black homes and homes in Black neighborhoods are often appraised at lower values, but tax assessments are higher than they should be. This causes Black homeowners to receive less than they should in sales and pay more than they should in taxes – further deepening the wealth gap. 

While there has been progress in Black homeownership in the past few years, there are still many challenges in the way of housing equity. Homeowners have seen a plethora of housing gains during the pandemic, but the growing disparity between Black and white homeownership rates and home values paints the picture of who those winners actually are. While credit borrowers overall are stronger now than ever, the gap in credit access is growing along racial lines. Policies and interventions that target the barriers keeping Black Americans from homeownership are keys to achieving housing equity. Closing the credit and financial access gap is a good way to get more Black renters on the path to homeownership. The recent adoption from Fannie Mae and Freddie Mac of allowing rental payments to count towards credit history is a great example of how policies can be used to intentionally target these issues. 

[1] HMDA documentation for reasons for denial cite several reasons for denial based on credit, not just lack of credit history and poor credit scores. The full list of reasons for this denial are: Insufficient number of credit references provided; Unacceptable type of credit references provided; No credit file; Limited credit experience; Poor credit performance with us; Delinquent past or present credit obligations with others; Number of recent inquiries on credit bureau report; Garnishment, attachment, foreclosure, repossession, collection action, or judgment; and Bankruptcy.

[2] Assuming the difference in Black and all home value growth rates stays at the September 2022 forecasted levels (0.8 percentage points difference), it would take until 2044 for Black home values to surpass all home values. If Black home appreciation slows down in comparison to all homes, this will take longer.