HOUSING DATA AND POLICY SNAPSHOT
The State of Home Ownership
Long considered to be an integral part of the "American Dream,” owning a house carries with it both prestige and tangible economic benefits–most notably the opportunity to build generational wealth. However, there remains a stubborn gap between white and non-white homeownership in the United States, which has contributed to vast differences in wealth between the two demographic groups. What can the state of homeownership tell us about this gap and the larger housing market today? This snapshot attempts to answer this question by briefly examining the history of homeownership, documenting current national and regional trends, and describing strategies that can potentially help close the gap between white and non-white homeownership.
A Brief History of Homeownership in the United States
During the second quarter of 2023, 65.9 percent of American households owned their primary residence. This percentage is right in line with where the United States has been for roughly the past 50 years, and an article written for Harvard’s Joint Center for Housing Studies (JCHS) by former Freddie Mac CEO Don Layton explains how we got here. Layton splits the history of American homeownership into three distinct periods, starting with the Pre-Depression Era when homeownership rates hovered near 46.5 percent during the early decades of the 20th century. This rate dropped briefly during the Great Depression, before rapidly increasing during a Transition Era that spanned the 1940s through the 1960s. The national homeownership rate grew by nearly 20 percent during this time in response to a variety of factors, including New Deal policies supporting the housing market, post-war economic growth, increasing suburbanization, and the expansion of the middle class
According to Layton, the modern era of homeownership began in the 1970s. Since that time, the homeownership rate in the United States has remained fairly stable at around 65 percent. Low interest rates and generous loan terms led to an all-time high mark of 69.2 percent in 2004, but the Great Recession that soon followed brought a sudden decline in homeownership, which bottomed out at 62.9 percent in 2016. Despite the economic shocks imposed by the COVID-19 pandemic, homeownership rates recovered from this 21st century low due in part to record low interest rates.
Why is Homeownership Important?
Homeownership serves as a source of both individual wealth building and community stability. Homeownership conveys numerous economic benefits, and owning a home helps households build wealth in several ways, including through value appreciation and tax advantages, such as the ability to deduct both mortgage interest and property tax payments from federal tax returns. For most middle-income Americans, the equity accumulated in their homes is the largest single source of wealth. This wealth can be used for retirement and can also be passed down from parents to children, allowing future generations to benefit from its positive effects.
An Increasingly Elusive Goal
Today, homeownership rates are under pressure from high prices, an undersupply of housing, and a sharp rise in interest rates starting in 2022. Together these factors have helped push homeownership out of reach for millions of renters at a time when large numbers of millennial households are entering their prime homebuying years.
According to JCHS, first-time home buying plummeted over the last year in response to the increased cost of homeownership. Between March 2022 and March 2023, payments on a median-priced home shot up from $2,500 to $3,000 as the annual interest rate on 30-year fixed-rate mortgages jumped from 4.2 percent to 6.5 percent. The result was a 22 percent annual decline in the number of mortgages originated to first-time homebuyers in 2022, including a year-over-year drop in the fourth quarter of nearly 40 percent, as over 2.4 million potential homebuyers were priced out of homeownership.
New research from Redfin also demonstrates that prospective property owners need to earn more money than they did a year ago if they want to buy. According to Redfin, the typical first-time buyer must earn roughly $64,500 per year in 2023–13 percent more compared to last year–to afford a typical “starter” home in the U.S. They define starter homes as properties priced in the bottom third of real estate listings.
Things are worse in Philadelphia’s Pennsylvania suburbs according to Redfin. In the Montgomery County metropolitan area, which includes Montgomery, Bucks, and Chester counties, first-home buyers need to earn $82,161 to afford a starter home. That’s roughly 20 percent more than they needed to make the previous spring.
Overall, research from the National Association of Realtors and Realtors.com suggests that the Philadelphia metropolitan area does not have enough homes available for low- and middle-income buyers. They found that households making $50,000 faced the largest shortage of available, affordable homes for sale.
Unequal Access to Homeownership
The benefits of homeownership are not evenly distributed. Furthermore, rising home prices have disproportionately affected potential homebuyers of color who were already much less likely to own homes than white households. Across the country, Black, Hispanic, and Native American households have lower homeownership rates than their white counterparts, and Asian households have lower homeownership rates in all states but Hawaii. This ownership gap is most pronounced amongst Black and white households: In 2021, homeownership rates sat at around 74.4 percent for white households, but only at 45 percent for Black households (see Figure 1).
Figure 1: Homeownership Rates by Race and Ethnicity in the United States
Decades of discrimination in housing and mortgage markets have contributed to the persistent racial gap in homeownership. Barriers such as redlining, segregation, mortgage denial, and high lending fees have all been used to limit access to homeownership for households of color.
Lower rates of homeownership are one of the key reasons why there is a large wealth gap between Black and white households in the United States. “A Snapshot of Race and Homebuying in America” shows that in 2019, the net worth of a typical white family stood at $188,200, nearly eight times higher than that of a typical Back family, at $24,100. Even when non-white households are able to purchase homes, they tend to be assessed at lower values than those occupied by white residents, leading to the accumulation of less wealth.
Homeownership Trends in Greater Philadelphia
How does homeownership in the DVRPC region compare to the rest of the nation? To find out, we pulled data from the US Census Bureau’s American Community Survey (ACS) for each of the region’s nine counties to assess the state of homeownership. Following a standard set by the Census Bureau, we calculated homeownership rates by dividing the number of owner-occupied housing units by the total number of occupied housing units in each location.
Between 2012 and 2022, the homeownership rate in Greater Philadelphia has stayed fairly constant, ranging from a high of 67.6 percent in 2011 to a low of 65.7 percent in 2017 (see Figure 2). During that time, the regional homeownership rate has tracked slightly higher than the country at large. However, the gap appears to be narrowing. In 2022, the regional homeownership rate sat at 66.2 percent, just one percent higher than the national rate.
Figure 2: Homeownership Rates in the United States and the DVRPC Region (2012-2022)
As shown in Figure 3 below, six counties in the region had homeownership rates greater than the regional rate of 66.2 percent in 2022, with the highest rates found in Gloucester, Bucks, Burlington, and Chester counties. Unsurprisingly, given the diversity of its housing stock and population, the homeownership rate in Philadelphia (50.8 percent) was significantly lower than the regional average. In 2022, the homeownership rate in Camden County (66.1 percent) was near the regional average, while the rate in Mercer County (63.7 percent) was slightly lower.
Figure 3: Homeownership Rates by County in the DVRPC Region (2022)
The racial gap in homeownership also exists in the DVRPC region, though it is slightly smaller than in the country as a whole. As Figure 4 illustrates, the region had slightly higher homeownership rates than the nation for all measured racial groups in 2021 except for Hispanic/Latino homeowners. This difference is perhaps most pronounced for Black households, whose homeownership rate sat nearly five percentage points higher in the DVRPC region than in the nation overall.
While slightly smaller than the national gap, there is still a pronounced disparity between white and non-white homeownership in the region. Non-white homeownership rates in Greater Philadelphia were approximately 24.2 percent lower than those of their white counterparts in 2021, compared to a difference of approximately 26 percent nationally. Of these non-white households, the homeownership deficit was greatest for Black (26.5 percent) and Hispanic/Latino (26.7 percent) households in the region. At nearly 67 percent, the homeownership rate among Asian households comes closest to that of white households.
Figure 4: Homeownership Rates by Race and Ethnicity in the United States and DVRPC Region (2021)
What about the City of Philadelphia itself? A 2020 report by Pew stated that just over half of the city’s households own their homes—a higher share than in most other large cities in the Northeast and Midwest. The city is also a leader in low-income homeownership: around 38 percent of low-income households in Philadelphia own their homes, which is higher than many other cities in the United States. However, the Philadelphia-Camden-Wilmington metropolitan area lost nearly a quarter of its low-income homeowners between 2010 and 2020 while simultaneously experiencing a 79 percent rise in the number of high-income homeowners. A possible explanation for this trend could be that rising home values and prices in the city prevented low-income renters from entering the housing market, while at the same time making it harder for existing cost-burdened and low-income owners to keep up with escalating costs, leading to foreclosure.
According to a report by the Federal Reserve Bank of Philadelphia, the gap between white and Black homeownership is smaller in the City of Philadelphia than in the United States overall, but it still exists. Moreover, Black homeownership in the city has actually decreased over the past few decades, resulting in a homeownership gap that was slightly wider in 2019 than it was 30 years ago. The report explains that low housing costs aided by the creation of laws banning discrimination in the housing market caused Black homeownership to increase from 1960 to 1990. However, since then, Black Philadelphians have continued to face larger rates of mortgage denial due to credit history than their white counterparts, which has acted as a key barrier to ameliorating the white and Black ownership gap in the city. Additionally, while the whole city was adversely impacted by the housing market crash of 2007, Black neighborhoods were disproportionately affected due to higher percentages of subprime mortgages in those areas. As a result, many Black homeowners experienced foreclosure in the late 2000s and early 2010s, exacerbating racial disparities in homeownership.
Closing the Gap: Policy and Programmatic Solutions to Racial Homeownership Disparities
There are numerous ways to reduce the gap in homeownership rates between white and non-white Americans. In an article for the publication Shelterforce, Brittany Hutson and Miriam Axel-Lute advocate for the creation of programs specifically targeted at increasing homeownership among people of color, rather than broader homeownership assistance programs. An example of one such program is the Racial Equity Accelerator for Homeownership, a partnership between the Federal Home Loan Bank of San Francisco and the Urban Institute. It seeks to increase homeownership opportunities for non-white Americans by working to remove historical racial bias from AI algorithms used in the housing market and addressing student loan debt which disproportionately affects the Black community. Meanwhile, Fannie Mae has recently decided to allow lenders to consider mortgage applicants’ rental payments when evaluating credit risk, which would greatly benefit Black borrowers with no or limited credit histories. For its part, JCHS advocates for providing down payment assistance to first-generation homebuyers whose families have traditionally been excluded from past homeownership opportunities, increasing homebuyer assistance and education, and increasing the housing supply in communities of color.
Within the Greater Philadelphia region itself, a new program led by Freddie Mac is also looking to ameliorate racial disparities in homeownership. Called BorrowSmart Access, this initiative grants first-time Black and Latino homebuyers $3,000 to use as part of their downpayment and provides financial counseling. According to the Philadelphia Inquirer, Freddie Mac chose Philadelphia, along with nine other metro areas including Atlanta, Chicago, Detroit, and Miami, due to its sizable population of Black and Latino residents who can qualify for mortgages and afford to be homeowners.
The Urban League of Philadelphia is also currently working on "Philly 5 by 25," an initiative aimed at expanding homeownership opportunities for non-white residents. The program seeks to create 5,000 new homeowners of color in Philadelphia by 2025 by connecting inexperienced or credit-challenged buyers with resources and financing, providing down payment assistance, expanding the supply of affordable housing in the city, and running an informational campaign to advertise the program to prospective homebuyers of color.
Learn more about general assistance programs for first-time and low-income homebuyers in jurisdictions across the DVRPC region:
Bucks County: Housing Resources for Bucks County Residents
Chester County: Housing Partnership of Chester County First Time Home Buyer Program
Delaware County: Delaware County Homeownership First Program
Montgomery County: Montgomery County First Time Homebuyers Program
Burlington County: Burlington County First-Time Homebuyers Program
Gloucester County: Gloucester County Homebuyer Down Payment Assistance Program
Mercer County: Mercer County First Time Homebuyer Program
Philadelphia: Philly First Home Program
Trenton: Trenton First-Time Homebuyer Program