PERSON OF THE WEEK: Prior to the COVID-19 crisis, the Hispanic housing market was seeing significant year-over-year growth. According to the National Association of Hispanic Real Estate Professionals (NAHREP), the Latino homeownership rate increased for a sixth consecutive year in 2019, rising a whopping 47.5% compared with 2018.
Last year, the total number of Hispanic homeowners increased by 277,000, while the overall number of Hispanic households increased by 435,000, according to NAHREP.
Will that trend continue now that the housing market is starting to recover? To find out, MortgageOrb recently interviewed Noerena Limón, senior vice president of public policy and industry relations at NAHREP.
Limón is an experienced policy analyst with a demonstrated history of working with government and the housing industry. She previously worked at the Consumer Financial Protection Bureau as a policy analyst for the mortgage markets team and worked for the Obama administration in the White House Office of Political Affairs.
Q: Up until the pandemic, how had Hispanic homeownership been trending?
Limón: It is no stretch to say Latinos drive the housing market. Roughly 1.9 million Latinos became new homeowners over the past decade, a period during which they accounted for 51.6% of the overall growth in U.S. homeownership.
The Hispanic homeownership rate has increased each of the past five years and climbed nearly an entire percentage point in the past two years for which statistics are available, from 46.2% to 47.5%.
In 2018, the Hispanic demographic injected $371 billion into the economy through the housing market alone.
Q: Why has homeownership for this group been so strong?
Limón: Not only are Latinos the fastest-growing ethnic group in the U.S., and now account for 57.6% of the country’s population growth, at a median age of 29.5 years old, Latinos are just aging into prime home buying years and have an overwhelming desire for homeownership. But this doesn’t tell the whole story.
Latinos have also played a critical role in our nation’s workforce. Latinos participate in the labor force at a higher rate than any other demographic group, which has been the case for the past 20 years. In addition, Latinos are twice as likely as the overall population to live in multi-generational households, often pulling several incomes together to achieve homeownership.
According to the 2019 State of Hispanic Homeownership Report, Latinos also tend to buy homes at a younger age: In 2018, about 40% of Hispanic homebuyers were under age 34.
Q: Is the growth in homeownership concentrated in any single geographical area?
Limón: Almost every market in the country has seen a growth in Hispanic homeownership, but several housing markets in Texas, California’s Inland Empire, and the New York City and Phoenix metro areas added the most new homeowners in 2018. The fastest growth rate came from Columbus, Ohio.
Q: How have Hispanics been impacted by COVID-19?
Limón: Up until COVID-19, Latino unemployment had fallen to a near-record low, according to a report from the Pew Research Center, coupled with two decades of having the highest labor participation rate out of any demographic.
Unfortunately, Latinos have been disproportionately hit by the pandemic. Latinos tend to work in industries that have been the most severely impacted by the accompanying recession, such as leisure, hospitality, retail and other service industries.
In Oregon, Iowa, Florida and Washington state, the coronavirus infection rates among Latinos are outpacing that of the overall population. And of note, Latinos are also highly represented in the meat processing industry, where viral infections are rampant. In addition to being hard hit by the pandemic and recession, many Latinos are currently without health insurance, leaving them even more financially vulnerable.
Q: What impact has the coronavirus had on the availability of real estate credit for Hispanics?
Limón: On non-agency loans, lenders are being more cautious and tightening underwriting standards. The MBA’s most recent Mortgage Credit Availability Index (MCAI) reported a 12.2% drop in April as a result of tighter lending criteria. Even the MCAI index for government loans, which are extremely popular among Hispanic first-time homebuyers, fell by 9.5%.
Furthermore, the mortgage servicing liquidity crunch has led to a number of credit overlays including stringent debt-to-income ratios (DTI) and FICO score requirements. Some lenders have gone as high as requiring 700 FICO scores and eliminating cash-out refinances. This is alarming, because as stated in the State of Hispanic Homeownership Report, Latinos have a median credit score of 684 and one third of Latinos have a DTI above 45%, meaning that many Latinos who are looking to take advantage of lower interest rates and refinance or purchase a home are unable to do so.
Q: What is the outlook for Hispanic homeownership?
Limón: We remain cautiously optimistic that the same characteristics that led to the five consecutive years of homeownership growth prior to COVID-19 will once again be what propels Latinos to similar trends in the aftermath of the crisis.
What we are certain of is that Latinos will continue to drive growth in homeownership demand in the foreseeable future and will be vital to the health of the housing market overall. Latinos are young and just aging into prime home buying years. The median age of Latinos in the U.S. is 29 to 10 years younger than the average person in this country.
According to NAHREP’s report, over the past decade Latinos have accounted for 40.4% of the overall U.S. household formation growth, adding over 4.3 million new households during that period and significantly outpacing the household formation growth of the overall U.S. population.
The Harvard Joint Center for Housing Studies shines light on the exponential role Latinos will play in driving housing demand in America as they predict that Hispanics will go on to account for 37% of the total household formation growth between 2018 and 2028.
The share of Hispanic household formation growth is only set to increase even further when the share of non-Hispanic white household formations decline between 2028 and 2038 due to baby boomer losses.
However, to the degree that the young, entrepreneurial Latino population will be able to gain access to mortgage credit and have the ability to sustain their mortgages, that small businesses are prioritized throughout the pandemic and that Latino workers are able to receive the cash-flow support they need to quickly get back on their feet, will determine the optimization of the U.S. Latino workforce.