The American dream is to get an education, get a job, buy a home, and live the good life. When that dream becomes a reality, especially when you own a home, you likely will be able to build a nice nest egg and pass it on to your family.
Latino Homeownership And Wealth Accumulation
For Latinos, achieving the American dream is harder. Although Latinos are buying homes at an accelerating rate — according to a 2023 report from the National Association of Hispanic Real Estate Professionals, nearly 50% of Latino households have purchased a house — they never really own them. No one, regardless of race or ethnicity, really owns a home while there is a mortgage, and for many Latinos, the mortgage never seems to be paid off.
The Latino Policy Forum in Chicago recently hosted a series of community meetings as part of an ongoing project on Latino homeownership in the city and its suburbs. During one of those interviews, a Latina succinctly summed up the stories we had been hearing: “The American Dream is owning a home, but for us, it is only a dream. We do not take out 30-year mortgages; when money is needed, you refinance and restart the whole mortgage process, resulting in paying a mortgage for 40 or 50 years. We leave our kids a home, but it is a home with debt.”
A recent Federal Reserve report notes housing is the most significant component of wealth for many families. It “has also been found to yield strong financial returns on average and to be a key channel through which families build wealth,” the report said.
However, data shows building wealth through homeownership is more difficult for Latinos than white people. Latinos have the lowest average weekly income earned of all racial/ethnic groups and often do not have a credit history or carry debt that impacts creditworthiness. Latinos have fewer intergenerational wealth transfers, lower down payments, and higher interest rates and closing costs than white families. For example, a recent report from the National Community Reinvestment Coalition found closing costs and interest rates substantially higher for Latinos; they paid 43%, or 1.5 billion dollars, more than white people to close on a home.
Expanding Opportunities For Latino Wealth Accumulation Through Homeownership
A forthcoming report from The Latino Policy Forum and The Metropolitan Planning Council in Chicago identifies policy ideas for increasing the probability that Latinos can use homeownership to build wealth and transfer some of it to their families. Policy directions in that report aim to strengthen the economic prospects and security of Latinos as homeowners. Those recommended policy actions include creating programs providing low-interest loans for renovations and repairs or replacing expensive items such as a flood control system or a roof.
In addition, economic education programs should be designed to help mediate and inform prospective home buyers, especially first-timers, on negotiating to buy a home and plan for the expensive homeownership costs that are not so obvious. Economic development incentives should also include providing well-paying jobs in areas with sizable Latino populations, and new affordable housing units should be built near transit hubs.
Another area where policy actions are needed is medical debt. Preeti Vankar from Statista found that as of 2022, 50% of Latino adults have medical debt; when compared to white people, 35% more Latinos are encumbered with medical debt. While there have been some changes to how and when medical debt is handled on credit reports, for Latinos, not reporting it would go a long way toward improving their credit scores and creditworthiness. This, in turn, opens the door to acquiring more favorable mortgage and loan options.
In addition, an incentive structure should be created whereby no equity is removed from the home when mortgages are refinanced for better terms. This would allow Latinos and others to decrease monthly mortgage payments through refinancing while not restarting the mortgage. This would increase the probability of homeowners paying off their mortgage in 30 years or less instead of carrying that burden for 40 or 50 years, thereby creating a more conducive environment for wealth- building and the intergenerational transfer of wealth.
Latinos’ Economic Gains Through Homeownership Are Gains For All
From an economic perspective, Latino wealth accumulation through homeownership is in the nation’s best interest. A recent McKinsey & Company report notes that Latinos are a prime driving force of the U.S. economy. Thus, enhancing Latinos’ ability to accumulate wealth through homeownership and their ability to transfer wealth to younger generations benefits not only Latinos but also the nation, its states, and its local communities.
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