For 16 years prior to 2009, the federal government tried to boost home ownership rates among minorities and immigrants. Instead, it managed to cut in half the median value of real estate equity held by Hispanic homeowners.
The median value of Hispanic-owned homes fell from nearly $100,000 in 2005 to barely $49,000 by 2009, according to a new report from the Pew Research Center. Meanwhile, Hispanics’ home ownership rate returned to the 1999 level.
The massive financial impact on Hispanics was even greater than the impact on blacks, whose median home equity declined by one-fifth to $59,000. Median home-equity among whites also declined by one-fifth, down to $95,000.
The Pew report, released July 26, is built on the Census Bureau’s Survey of Income Program and Participation.
Hispanics were hit hard because many families bought homes shortly before the decade-long property bubble peaked in 2006, said Rakesh Kochhar, the chief author of the Pew report.
The bubble was created from 1995 onward when the federal government, the real estate industry and the financial sector worked together to ease poor people’s access to credit, increase the number of homes sold to poorer people, and spread the risk of default by low-income home buyers, especially in the southwest.
When the bubble burst, Hispanic households’ average net worth was slashed by 66 percent, from $18,359 in 2005 to $6,325 in 2009. “Hispanics derived nearly two-thirds of their net worth in 2005 from home equity and are more likely to reside in areas where the housing meltdown was concentrated,” said the Pew report.
The bursting of the bubble was accompanied by an economic slowdown that forced massive layoffs in the construction industry, where many Hispanics had found work, said Kochhar. The result, said the report, was “a 42% rise in median levels of debt they carried in the form of unsecured liabilities,” such as credit cards.
The massive loss of equity and wealth then spread to Wall Street.
Many risky mortgages sold to low-income buyers had been subsequently passed on to Wall Street banks, which then used them as collateral for large-scale financial bets. Wall Street stock values crashed in 2008, once the banking industry recognized that many of the risky mortgages would never be paid off.
Officials working in the Clinton and George. W. Bush administrations pushed the federal policies spurring the boom that began in 1995.
In October 2002, for example, Bush hosted a White House Conference on Minority Homeownership and declared that he would try to close a minority “home-ownership gap.”
“We have a problem here in America because few than half of the Hispanics and half the African Americans own the home … by the end of this decade we’ll increase the number of minority homeowners by at least 5.5 million families,” Bush declared.
Bush’s policy was spurred by the promise of an economic boom from home building, but also by the hope that property-owning Hispanics would align themselves with the GOP. “Ownership of a home helps bring stability to neighborhoods … It helps people build up their own individual portfolio, provides an opportunity, if need be, for a mom or a dad to leave something to their child,” Bush said.
In the ensuing years, the real estate and financial industries used the Clinton and Bush regulations to sell houses and mortgages to many poor Hispanics, including to many new immigrants who eventually would be unable to meet their financial obligations.
A January 2009 Wall Street Journal article quoted Tim Sandos, then at the National Association of Hispanic Real Estate Professionals, saying “We would say, ‘Is he breathing? OK, we’ll give him a mortgage.'”
Many government-backed loans went to Hispanics in California, Nevada, Florida and other southern states. In turn, the loans spurred a massive building boom, further immigration, and yet more construction in Las Vegas, in Californian exurbs and in former deserts.
“Gerardo Cadima, a Bolivian immigrant who works as an electrician, bought a home in suburban Virginia for $330,000, with no money down,” the Wall Street Journal reported. “‘I said this is too good to be true,’ he recalls. ‘I’m 23 years old, with a family, buying my own house.’ When work slowed last year [in 2008], Mr. Cadima ran into trouble on his adjustable-rate mortgage. ‘The payments were increasing, and the price of the house was starting to drop,’ he says. ‘I started to think, is this really worth it?’ He stopped making payments and his home was sold at auction for $180,000.”
From 2005 to 2009, the U.S. Hispanic home ownership rate fell from 51 percent to 47 percent; it likely has fallen further because people who bought late in the bubble are more likely to foreclose, said Kochhar. By 2009, the overall Hispanic home ownership rate returned to the level it was in 1999, he added.
The home ownership rate among black households fell only 1 point by 2009, to 46 percent. The ownership rate among white households remained unchanged at 74 percent during during the 2005–2009 downturn, Kochhar said, and has likely remained stable since.