According to a recent report by the St. Louis Federal Reserve, home ownership impacts racial groups differently, in terms of wealth creation. Both black and Latino families have greater wealth concentrated in their homes than do white and Asian families. Roughly 42% of Latino and black family wealth is tied up in their homes versus white families (25%) or Asian families (32%).
Why is this an issue? The concentration of wealth in one’s house subjects these racial groups to greater risk should housing once again come under pressure. Furthermore, this concentration of wealth in housing has kept both black and Latino families from participating to a greater extent during the recovery.
As we’ve reported in recent posts, income growth has generally been non-existent since 1999, and the concentration of wealth among the top 0.1% versus the bottom 90% has been exacerbated by stock owenership and dividends. By having most of their wealth in housing, blacks and Latinos have little left to invest in equities, bonds, and alternatives.
Furthermore, inflation-adjusted home ownership equity appreciated by only 0.5% per annum for Latino families from 1989-2013, and actually declined -0.4% per year for black families during the same timeframe. For white and Asian families home ownership equity grew 1.2% and 2.5%, respectively. So, not only is wealth concentrated in their homes, but their homes have seen little to no inflation-adjusted growth, leading to a greater wealth divide.