Amid the recent real estate bull market, one fact has been often overlooked: More than half of home ownership growth over the past decade has come from the Latino population. That trend is expected to continue. A study by the Urban Institute forecasts Latino buyers will comprise 70% of home ownership growth from 2020-2040, serving as the growth engine of American home buying. In fact, the Urban Institute suggests that Latinos will be the only ethnic or racial group that will experience a higher home ownership rate over the next couple of decades.
Financial crisis and home ownership
In the years since the 2008-2009 financial crisis and sub-prime mortgage meltdown, Latino home ownership rates declined to a low of approximately 45% of the Hispanic population in 2014, according to data from the National Association of Hispanic Real Estate Professionals (NAHREP). By 2020, however, that rate had rebounded to approximately 49%, similar to its pre-crisis peak, driven in part by lower interest rates and an improving job market.
The age structure of the Latino population, which at an average age of about 29-years-old is approximately 14 years younger than the general population, is one of the most significant contributors to the strong growth in the home ownership rate, according to NAHREP. In 2020, nearly half (43.6%) of Latino homebuyers were under the age of 34, compared to 37.3% of the general population. Today, nearly one in three Latinos is currently in the prime home buying years (25-44), according to U.S. Census Bureau data.
Additionally, as other ethnic groups' populations grow older on average in the coming years, that tilts the home ownership growth rate further in favor of Latinos, since first-time home owners tend to be in their twenties, thirties, and forties.
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Down payments, credit scores and mortgages
Despite the trends in Latinos' favor, there are ongoing – and new – barriers to home ownership that many Hispanics face.
Latinos purchase homes with an average down payment of 3.5%, and have a median credit score of 668 and median debt-to-income ratio of 41%, a borrower profile which may make them more vulnerable to mortgage underwriting standards cut-offs and changes, according to the NAHREP study. Additionally, historically low home inventory and a hot real estate market for entry-level buyers may create further barriers.
"The housing market is hottest in the entry-level or affordable space, and prospective buyers are competing with multiple bids for the same home," said Dale Baker, president of home lending at KeyBank. "We are seeing more regular occurrences of buyers willing to pay over list price, which means more money down, which again presents a challenge for those looking to buy a home in our communities."
The pricing pressure on entry-level buyers is especially acute in many large markets, where prices have increased by 10-15% this year. This leads to higher down payments and overall borrowing costs, when combined with interest rates that are beginning to creep upward.
"A family looking to purchase their first home can expect a larger down payment and/or mortgage payment," Baker said. "Not only have prices gone up, but mortgage rates are rising too. While still near historically low levels, rates are off their lows of the cycle and expected to continue to increase as the economy improves. These trends both contribute to the barriers of home ownership."
Despite these issues, the NAHREP and Urban Institute reports point to other areas of strength among Latino home buyers that are likely to continue propelling their home ownership rate growth.
Some of the markets with the highest rate of Latino home ownership have been Boise, Idaho, and Durham, North Carolina. Rapidly rising home ownership in secondary markets means some Latinos can escape the burgeoning housing costs in the largest cities. And Latino household formation rates and cultural home ownership habits also support this ongoing trend. The combination of positive demographic and economic factors continue to buoy a home ownership market that is increasingly Latino.
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Disclosure: NBCUniversal and Comcast Ventures are investors in Acorns.