The Risks and Rewards of Homeownership

Historically, owning a home has been part of achieving the “American Dream.” This long-standing narrative posits that with enough hard work anyone in the U.S. can rise from modest beginnings to true economic stability often seen in the form of a stable job, a secure retirement, a comfortable place to live, and perhaps a nest egg to pass along to one's children. There are as many different versions of the "American Dream" as there are Americans, but it's fair to say financial stability in the form of homeownership is central to that vision for many people.

Indeed, through much of the early and mid 20th century, Americans bought homes as a way to secure their foothold in the middle class and claim a slice of that American Dream. Unfortunately, that era was also characterized by pervasive and institutionalized discrimination against people of color and women of all races, who were typically not able to to buy property and invest their wealth in the same way as white men. As laws changed and this pattern of discrimination was challenged, Americans of all races were able to become homeowners, although significant challenges lingered. Residential segregation, continued employment and income gaps, and a rise in predatory mortgage lending products have all thrown up road blocks for Americans of color seeking to build wealth by becoming homeowners. The bursting of the housing bubble in 2008 and the ensuing financial crisis brought widespread attention to predatory lending and its disproportionate impact on communities of color.

According to the most recent Survey of Consumer Finances from the Federal Reserve, between 2007 and 2010, Americans overall lost a median of 38.8 percent of their net worth, in large part due to the staggering loss of wealth held in their homes. As our Assets Report infographic shows, Americans of color were hit particularly hard in the crisis. Predatory and racially discriminatory mortgage lending practices are now under scrutiny by the Consumer Financial Protection Bureau, the Department of Housing and Urban Development, the Department of Justice, and a host of advocacy and legal organizations. The well-documented pattern of predatory lending turned the dream of owning a home into a nightmare for many aspiring homeowners.

So where do we go from here? That's the question Asset Building Program director Reid Cramer seeks to answer in his new Washington Monthly piece, out this month as part of a larger issue examining race relations at the start of Obama's second term and 150 years since the Emancipation Proclamation. As he writes:

"With the right policies, homeownership could once again become a major avenue of broad upward mobility in American life, even for families with lower incomes. Proof of concept comes from an innovative community financial institution that has proven to be financially sustainable even as it has benefited lower-income home buyers throughout the collapsing real estate market of recent years."

He goes on to detail the work done by the Community Advantage Program, a North Carolina-based effort that worked with lower-income families to provide safe and affordable mortgage products. Despite small down payments, CAP families have seen lower delinquency rates than the national average. By coupling non-predatory mortgages with financial education and other supportive services, CAP proved that homeownership could be an important, and not unduly risky, asset building tool for low-income families. Cramer concludes by calling for the policy and advocacy community to "build a sustainable and transparent mechanism for assuring that mortgage credit continues to flow to creditworthy borrowers, especially to members of historically disadvantaged groups." 

Despite the recent downturn and housing crisis, many people continue to view homeownership as a primary wealth building strategy. Ensuring equal access to this opportunity is thus a valuable goal for policymakers. We've got a long way to go as a country to fully mitigate the various risks that aspiring homeowners face, but democratizing access to the rewards of homeownership is a worthy policy priority.