The ability to transfer wealth from one generation to the
next is the driving force behind ending intergenerational poverty. Most wealth
in the United States is gained from the appreciation of home values over time.
Twenty-five percent of Americans' wealth, the sum of all physical and financial
assets, comes from the increased value of homes -- and that number is nearly
50% for people of color.
However, according to a new study by the Russell Sage Foundation,
household net worth declined steadily between 2007 and 2013. While wealth
certainly was lost at the top of the distribution, households at the lowest end
of the spread were hardest hit, losing 60% of their wealth. Since 2007,
approximately one-quarter of all Latino and African-American borrowers have
lost their homes to foreclosure or are seriously delinquent, compared to just
under 12% of white borrowers.
The problem is not just that so much wealth was lost, it's
that the prospects for reversing that trend are so few. Seven years after the
Great Recession, credit to buy a home is not generally available, and experts
don't believe it will be any time soon.
Even if credit were more widely available to low-income
people, other market realities will likely block them from homeownership for
many years to come. Similarly, escalating student loan debt is shutting the
door to homeownership. Today's average starting salary for college graduates is
$45,000, yet two-thirds of Americans leave school with more than $25,000 in
debt; one in 10 now owes more than $54,000. For years to come, most recent
graduates will not be able to meet new mortgage rules that require total debt
not to exceed 43% of income.
Frustratingly, all of this is happening when there is a
once-in-a-lifetime number of affordable homes on the market because of the
foreclosure crisis. Not only can't low-income people get the financing to buy
them, but the homes are being purchased by institutional investors at a record
pace.
While mortgage lending conditions and requirements are
unlikely to change dramatically, there are steps that could be taken toward
more equitable access to homeownership. Since the Great Recession, sub-prime
lending has been virtually eliminated. Criticisms of the practice are real, but
programs that combine subprime loans with comprehensive home ownership training
courses and support have proven successful.
The Cities for Financial Empowerment Fund is working with
local government agencies around the country to assist low-income people in
reducing debt, improving credit and building savings. A recent report from the
Census Bureau found that the median wealth of the poorest 20% of American
households was negative $6,029 in 2011, compared with negative $905 a decade
ago. If we want to reverse this trend and narrow the wealth gap, we need a
better path to homeownership for low-income families.
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