By Tatiana Flowers, Colorado News Collaborative
Michael Diaz-Rivera hoped $25,000 in savings and a good credit score would give him enough leverage to buy a home. But his low teacher’s salary made that nearly impossible.
“The prices in Denver were just a little too steep for me and the market was just too high,” he said in late April. “Every time that I would find a house, while I was still thinking about whether I wanted to put the money down, somebody else is coming in and they’re just buying it all out with cash. It was wild.”
It took a year, but Diaz-Rivera was finally able to purchase a home with some help from a community land trust, one of a handful of programs working to make homeownership more accessible to low and moderate income Coloradans.
“To look at my kids and know we don’t have to worry about redoing a lease, knowing that everybody's prices are going up and that we’ve got a stable house, is just something that I’m working for,” said Diaz-Rivera, who identifies as Black. “Now, I can say my kids have a house to grow up in, something I never really had.”
Homeownership is the primary means of accumulating wealth for the average family, housing advocates said, and closing the homeownership gap is the most effective way to close the racial wealth gap.
About 48% of white residents can afford to buy the typical home in Colorado, compared with 30% of Black residents and 32% of Latino people.
In the last decade, the gaps between Black and white homeownership have widened. In 1970, the homeownership gap between Black and white households was 19 percentage points and it has grown every decade since to 32 percentage points in 2020. In 2020, 73% of white Coloradans owned their own home, compared with 41% of Black Coloradans, new Census Bureau data says.
The news is better for Latino Coloradans. In 2020, the homeownership gap between Colorado's white and Latino households narrowed for the first time in 50 years.
Home ownership rates among Latinos are highest now in the Adams County suburbs of Commerce City and Thornton.
“It’s encouraging that we see some closing of that gap among Hispanic homeowners and it is dispiriting to look at how wide the gap still is with Black homeowners,” said Mike Johnston, president and CEO of Gary Community Ventures, a nonprofit running a new down payment assistance fund for first-time Black homeowners. “When you look at a scenario where in Colorado the homeownership rates are almost twice as high for white families as for Black families, I think that is a major crisis.”
Nationwide, 63% of white Americans can afford to buy the typical home, compared with 43% of Black Americans and 54% of Hispanics, according to the National Association of Realtors.
In partnership with the Colorado News Collaborative and news organizations across the state, The Colorado Sun examined gaps in homeownership rates for “Chasing Progress,” an in-depth reporting project on the social, economic and health equity of Black and Latino Coloradans.
The U.S. is short about 3.8 million housing units relative to demand, making one of the toughest real estate markets in history even more difficult for middle and low wage earners trying to rent and buy homes.
The market has been further complicated by institutional investors buying single-family homes that might otherwise have gone to first-time homebuyers. Rising interest rates have made it even harder for the many buyers to afford homes as prices continue to rise.
Buying a home is a considerable feat for anyone. But the challenge is steepest for Black and Latino homebuyers, especially first-timers, who are still facing racial discrimination, income inequality, and the reverberating effects of predatory lending and exclusionary zoning practices.
Diaz-Rivera, who now owns a cannabis delivery company, was able to buy with some help from the Denver-based Elevation Community Land Trust, which made the house in his north Aurora neighborhood more affordable by retaining ownership of the land it sits on. Under the agreement with the nonprofit, if he sells the home, he will retain 25% of the equity that has built up. The remaining 75% remains with the home, which will make it affordable to the next buyer who will be selected from applicants who earn less than 80% of the area median income.
Diaz-Rivera moved into the three-bedroom house in February 2021 understanding that it won’t be a “forever home.” He wants total ownership one day and said his new home is a step toward financial stability.
The white/Latino homeownership gap
The homeownership gap between white and Latino Coloradans grew from 7 percentage points in 1970 to 21 percentage points in 2010, but then narrowed to 18 percentage points in 2020. It's difficult for housing experts to explain the narrowing gap, but they said, a number of conflicting factors could help explain the trend.
“There's this huge trend and desire within both the Black and brown communities to increase homeownership, and it's a huge desire, especially with young Latino adults,” said Jonathan Cappelli, executive director of the Neighborhood Development Collaborative, which works to create equitable and sustainable development in Colorado and across the country.
“But there's a dampening effect that's countering that because of existing systemic racism and also direct racism and discrimination,” Cappelli said.
Latinos are 81% more likely to be denied financing for a conventional loan when compared to their non-Latino counterparts. Generational wealth disparities also play a role in the homeownership gap. Median white households have more than five times the wealth of median Latino households, helping them come up with all-cash offers or qualify for pre-approval in Colorado's fast-selling market, according to the National Association of Hispanic Real Estate Professionals’ 2021 State of Hispanic Homeownership report.
Home appraisers are more likely to undervalue homes in majority Black and Latino neighborhoods relative to majority-white areas, leading to lower rates of homeownership for those two groups of color, according to a 2021 study by Freddie Mac.
Data from more than 12 million appraisals from Jan. 1, 2015, to Dec. 31, 2020, shows 12.5% of properties in Black census tracts were appraised at values lower than the contract price, compared with 7.4% of homes in white census tracts and 15.4% in Latino census tracts, according to Freddie Mac.
People hoping to buy homes in these majority Black and Latino areas are applying for loans that are based on the value set by the appraiser. If the appraiser is biased or intentionally discriminatory and sets a lower appraised value, the buyer will be approved for loan that may not be commensurate with the actual price of the home, Cappelli said.
Black and Latino people selling homes in those communities will also face wealth-building obstacles because a low appraisal would cause them to sell for less than their home is worth, he said.
Rachel Chaparro, a Colorado real estate broker who specializes in working with first-time buyers, said one of her Latino clients who had a 640 credit score, which is considered fair, was deemed high-risk and denied a conventional mortgage loan, while white clients with lower credit scores and more debt were approved.
Most people who are turned down for a conventional loan try for a mortgage backed by the Federal Housing Administration. While the FHA is willing to loan to those who might be a higher credit risk, its loans come at a higher cost, including mortgage insurance, which must be paid for the life of the loan if the recipient makes the minimum 3.5% down payment.
Now, Chaparro's client is paying almost $400 per month for mortgage insurance, on top of his mortgage payment.
Latinos are twice as likely to purchase a home with an FHA loan than white homebuyers, according to the Hispanic Homeownership report.
Thornton and Commerce City
The Colorado Housing and Finance Authority conducted focus groups in 2017 and 2018 with Latino residents and housing professionals to gauge the gaps, opportunities and barriers to homeownership. Since then, the portion of households CHFA has served that are Hispanic/Latino has grown to 40% in 2021 from 28% in 2016. “This has contributed to the 3.6% increase in the overall Latino homeownership rate in Colorado,” Cappelli said.
Some of the highest homeownership rates among Latinos in Colorado are now in Commerce City, where 68% of Latinos owned their homes in 2020, and Thornton, where 61% of Latinos owned a home that year.
“The biggest thing with Thornton and Commerce City is just affordability,” Chaparro said.
Census data shows that homeownership rates are high in both cities for people of Hispanic origin between the ages of 25 and 44 as far back as 2010.
“That really points to the uniqueness of both markets in terms of both affordability and amenities that they offer to Hispanic homebuyers,” said Avilia Bueno, a labor economist and associate at Root Policy in Denver, which conducts economic and housing research.
Historically, Latinos have also been more likely to live in multigenerational households, compared to other demographics, according to the Hispanic Homeownership report.
“Once a relative buys in a neighborhood, maybe the son or daughter might want to buy in a close-by location. I think if they could afford it, they would buy two homes close together, and those may be markets where you can actually do that,” Bueno said of Thornton and Commerce City.
Latinos were also more willing than any other demographic to choose a house that was farther from shopping and entertainment and were more willing to endure a longer work commute, according to the Hispanic Homeownership report. Since the pandemic, they have increasingly moved to suburbs for more outdoor space and to accommodate live-in family members, and have been more likely to rent space in their homes to others to help pay the mortgage.
After the Great Recession in 2008, there was a significant decline in homebuilding, which created a shortage of housing that never caught up. Homeownership rates among Latino households was at 49% in 2008 and dipped to 45% in 2014, but by 2021, the rate was at 48%.
“Basically, they’ve (almost) reobtained pre-recession rates, so they've gone back to the same homeownership rates that they had before the recession, or right when the recession hit,” Cappelli said. “It's not like this is an increase, historically speaking.”
The Black/white homeownership gap
Explaining the gap in homeownership between Black and white Coloradans appears more straightforward.
Redlining and other exclusionary housing policies, income inequality, discriminatory lending and appraisal practices have sidelined Black people in the past, and the reverberations of those inequities are affecting their children’s ability to buy a home today, Chaparro said.
Redlining, a policy in which banks determined whether to lend based on the racial composition of a neighborhood, kept Black people, other people of color, and others with low incomes from accessing mortgage loan, creating long-term and wide-ranging health, environmental and income disparities.
“Over time, those have accumulated to make it next to impossible to build wealth, particularly because one of the ways that you do it is in buying homes,” said Johnston of Gary Community Ventures.
The median white household has at least 10 times the wealth of the median Black household, according to the Brookings Institution. The racial wealth gap has continued to grow over the past 30 years. More than half of Black households lack any savings for retirement, according to Zillow.
The biggest obstacle for Black families is the ability to afford a down payment. About 93% of Black families with the credit scores and income to qualify for a home loan do not move on to purchase a home because they lack the cash for a down payment, according to an analysis by Gary Community Ventures. The organization is offering up to $40,000 in down payment assistance to at least 500 Black families in metro Denver, over the next 10 years, through its new Dearfield Fund for Black Wealth.
Bias in lending and appraising
Prejudice in the lending and appraisal system is still occurring, according to three housing professionals interviewed for this story.
In Colorado, Black mortgage applicants were turned down almost twice as often as white applicants. According to a Zillow analysis, 15% of Black mortgage applicants in Colorado were denied in 2020, compared with 9% of white applicants.
Owner-occupied homes in Black neighborhoods are undervalued by $48,000 per home, on average, which amounts to $156 billion in losses nationwide. When half of the residents in a neighborhood are Black, the homes are valued at roughly half the price of homes in neighborhoods with very few or no Black residents, according to Brookings.
April Denmon, a real estate broker, said she has had clients who, after seeking loans from five or six lenders, have come to her, frustrated and in need of help.
“Some lenders out there may discriminate a little bit, or may not want to work with you, so they may make it a little bit harder, or make your terms harder, whereas if you go to another lender that maybe looks like you or this person is supporting you, you may get a better rate, or they may give you a higher approval amount,” Denmon said.
“If you're a seller and you see the name ‘Martinez’ versus ‘Smith,’ and Martinez has an FHA loan, and Smith has a conventional loan, there's just inherent biases that people have, whether they're intentional or not,” Chaparro said.
On the appraisal side, Denmon pointed to two experiences where homes she was helping to sell for two Black clients were significantly undervalued. In both cases, the appraisers knew the sellers were Black. Denmon disputed the appraisal for one of those clients, by finding other homes in the area that were comparable, and provided the information to the appraiser. After the challenge, the appraiser raised the price of that home by more than $50,000, Denmon said.
Many Black people are told by their real estate agents to take down any personal belongings that would indicate their race, Denmon said.
“As a homeowner myself, when I went to go and put my home on the market, I was asked to take down personal items, but when I walked into people's homes I was looking at buying, I walked into a person's home who had a Trump flag flying,” said Jice Johnson, founder and chief visionary officer of The Black Business Initiative, who purchased her home in Aurora, in 2021.
Solutions
To help close the gap, the government should institute a loan program specifically for Black Americans that would reduce the risk to banks and allow them to relax their policies to help close the homeownership and racial wealth gaps, Johnson said. She pointed to VA-backed loans, where the Department of Veterans Affairs guarantees a portion of the loan that a veteran (and their surviving spouse) gets from a private lender. If their VA-backed home goes into foreclosure, the guarantee allows the lender to recover some or all of their losses. Since there’s less risk for the lender, they’re more likely to give the veteran or their spouse the loan under better terms. Nearly 90% of all VA-backed home loans are made without a downpayment, according to the U.S. Department of Veterans Affairs website.
The department’s Native American Direct Loan program also often has better terms than a home loan from a private lender, such as a private bank, mortgage company, or credit union.
“They made it specific to veterans,” said Johnson, a U.S. Army veteran. “They can create a program and make it specific to the Black community, in which they've caused harm.”
Latinos are more ready to become homeowners than ever before, and are the youngest of any ethnic or racial demographic, and in their prime home-buying years. They’re expected to make up 70% of homeownership growth over the next two decades. But that future growth is threatened by barriers in the housing market today, which could affect the nation’s productivity and economic wellbeing, according to the 2021 report.
Increasing the number of Latino real estate professionals could be one of the most effective strategies at increasing the number of Latino homeowners because they could create a “multiplier effect” that accelerates homeownership among their own friends and family, according to the report.
“It would help to make the name and race blind in all real estate transactions,” Chaparro said. “From loan applications to buyer offers and appraisals, not seeing the first and last name could help prevent intentional and unintentional discrimination.”
A glimmer of hope
Metro Denver has been a seller's market since 2012, the year that the recreational sale and use of cannabis became legal. The COVID-19 pandemic cemented the market conditions, Realtor Denmon said.
In January 2021, there were only 912 houses and 1,119 condos on the market in metro Denver, which includes Adams, Arapahoe, Boulder, Broomfield, Denver, Douglas and Jefferson counties. Many people began bidding on those houses, creating an appraisal gap on almost every home, which occurs when a buyer’s offer is higher than the appraised value of the property. It complicates the home-buying process, especially for low-wealth, first-time homebuyers.
“That was in January of last year. If you look at January of this year, it's even worse,” Denmon said. “Now we only have 712 houses, and we have 436 condos.”
For comparison, in 2007, there were 35,000 houses on the market in metro Denver. In 1973, a person could buy a house in metro Denver for $20,000. In April, the median single family home sale was $600,000 in Colorado and $660,000 in metro Denver, according to the Colorado Association of Realtors. Both medians were up about $100,000 from April 2021.
“These prices are not going to stop,” she said. “They're going to keep going up.”
Some of Denmon’s Black buyers won’t budge on the size, amenities or location of their home. But she advises that they be more flexible and get into the market as quickly as possible.
Normally homes appreciate at 6% a year. However, homes in the last year in metro Denver have been appreciating at just over 20% per year. So, if a person buys a house for $500,000, and the home appreciates at 20%, they will make $100,000 in equity in one year.
“So I tell everybody, ‘If you're on the fence, or if you're waiting, jump in now, buy now and don’t wait,”’ Denmon said. “Homeownership is possible. I can't stress that enough.”
