Hispanic homebuyers are the future of the U.S. housing market

The future of the nation may look a lot like Gwinnett County, Georgia, today. An expansive stretch of suburbia northeast of Atlanta, Gwinnett was, during the ’50s and ’60s, mostly farmland, mostly small towns, and mostly white. Since 2010, the booming region has been one of the most diverse places in the country, and is criss-crossed with highway strip malls brimming with cuisines from dozens of cultures.

It’s also one of the many places across the country where the population of Hispanic homeowners has boomed in recent years, according to U.S. census data. The number of Hispanic people in Gwinnett who owned homes grew 17 percent between 2012 and 2017, according to Curbed analysis of Home Mortgage Disclosure Act data. As the United States becomes more diverse, Hispanic homeownership has driven the rise of national homeownership rates.

The dramatic increase in the Hispanic population in Gwinnett and Georgia at large—a 118 percent jump statewide between 2000 and 2015—hasn’t come without race-related tension, says Jerry Gonzalez, executive director of the Georgia Association of Latino Elected Officials (GALEO). There’s long been strain over ideas about the “old” versus the “new” Gwinnett, efforts to prevent people of color from moving to the suburb, such as repeated rejections of mass transit expansion from Atlanta.

But thanks to a combination of job availability, affordable housing, and a growing number of new Hispanic arrivals from within the U.S. and from other countries, Gwinnett has been a magnet for newcomers. Slowly, leadership at the county, city, and state level is shifting to reflect Gwinnett’s changing identity.

“It’s the next phase of the migration pattern,” says Gonzalez. “Groups settle and become an integral part of the community. That’s what you’re seeing now in Gwinnett County.”

In many ways, Hispanic homeowners represent the future of the real estate industry

The growth of the U.S.’s increasingly eclectic Hispanic population, one of the largest and most consequential demographic shifts taking place in the country right now, is bringing diversity to communities across the nation. According to a recent Pew Research Center report, the country’s Latino population, which reached 58 million in 2016, accounted for half the national population growth since 2000. (Note that the terms “Hispanic”—which is based on the U.S. Census definition used by the NAHREP—and “Latino” are closely related, but not interchangeable. Hispanic refers to those from countries where Spanish is the primary language, while Latino refers to those from Latin America, namely South and Central America and the Caribbean.) This community has played a large role in stabilizing or growing the population in parts of the country that would otherwise see population declines. By 2020, Latinos will comprise the majority of new household formations.

That growth has also fueled a marked increase in Hispanic homeownership. According to the latest National Association of Hispanic Real Estate Professionals (NAHREP) State of Hispanic Homeownership Report, this group accounts for 32.4 percent of overall U.S. household formation.

But that’s just the start. Economic and population data suggests Hispanic homebuyers will become an even larger part of the real estate market in coming decades, in more parts of the country. Hispanic homeowners’ buying power is set to rise; the median income of Hispanic households grew from $46,000 to $60,000 the 10 years between 2007 and 2017, according to data collected by UnidosUS, a nonpartisan Hispanic advocacy group. A fifth of the millennial population in the country is Hispanic, suggesting many have just entered their prime homebuying years. While 55 percent of the nation’s Hispanic people live in Texas, California, and Florida, the Hispanic population of 11 other states has grown 10 percent since 2000: Connecticut, Rhode Island, Utah, Oregon, Washington, Idaho, Kansas, Massachusetts, Nebraska, Hawaii, and Oklahoma.

With these factors in mind, Hispanic people will comprise 56 percent of all new homebuyers by 2030, according to the Urban Institute.

“Hispanics are aging into prime homeownership years just as wages and job participation rates are increasing,” says Marisa Calderon, the executive director of NAHREP. “It’s the perfect configuration of factors that make a specific population influential in the economy, and in housing in particular.”

But at a time when overall homeownership rates hover near historic lows, and affordability becomes an increasing challenge across the country, is the real estate industry doing enough to court a new generation of Latino homebuyers? Experts agree that despite progress, the industry has some way to go to fully cater to this growing customer base and take advantage of a lucrative opportunity.

“It’s important for the housing market and for Latino homebuyers to afford financing and homes,” says Agatha So, a policy analyst with UnidosUS. “Think about the future and housing market and the economy. If Latinos aren’t able to obtain affordable financing, we may find the market may be slower overall.”

A history of challenges buying a home

The Hispanic population is by definition a diverse one. But studies have shown some broad similarities within this varied group, especially when it comes to homes and homebuying.

As a whole, Hispanic people have both placed more value, culturally and financially, on homeownership, and have overcome great obstacles to buying a house. A 2016 Federal Reserve report found that housing comprised 39 percent of total Latino financial assets, more than any other racial or ethnic group in the United States.

“Homeownership is a really important generator of household wealth, and seen as an important source of wealth transfer between generations,” says UnidosUS’s So.

That explains, in part, why the Great Recession had such an outsized—and devastating—impact on Hispanic wealth. Like other communities of color, Hispanic homebuyers were steered into riskier, higher-cost loans, says So, and the toxic financial assets took a huge toll. Forty-seven percent of the loans issued for home purchases by Hispanic buyers were subprime, according to the Economic Policy Institute.

Zillow data found that at the height of the housing bubble, in 2007, Hispanic people had 73.1 percent of their net worth tied up in their homes. Two years later, at the height of the crisis in 2009, 7 percent of Latino homeowners were in foreclosure, according to Federal Reserve data, the greatest percentage of any racial or ethnic group. Collectively, Hispanics lost 56 percent of their housing wealth to the crisis.

“In terms of affording a down payment, or having the credit necessary to be qualified for a mortgage today, the Great Recession really set the community back,” says So.

Further Zillow research found that foreclosed homes in Hispanic communities have doubled in value since hitting their low point in the Great Recession. But they’re still 9.5 percent below their peak. Add that to the housing segregation that reached its peak in the United States during the mid-20th century, via racial covenants and redlining, and the typical Hispanic family has long been denied the wealth-building opportunities of the average white family.

How the real estate and mortgage industry have gotten better, and can continue to improve

Long-overdue improvements have come, due in part to federal regulations, according to So. She points to the 2010 Dodd-Frank Wall Street Reform and Consumer Protection Act, which raised standards and helped Latinos avoid predatory or toxic loan products. In addition, the Community Reinvestment Act, which passed in 1977, has played a big role in helping today’s Hispanic homebuyers.

A UnidosUS report coming out later this month found that since 2014, the Community Reinvestment Act played a role in 15 to 30 percent of the home loans obtained by Latinos in low- to moderate-income census tracts. Together, these laws have had a “sweeping impact,” says So, helping more people obtain access to financing, and guaranteeing they’ll be successful once they do get approved for a loan.

The shortage of affordable, entry-level housing impacts all buyers. But there are still hurdles to overcome to even the playing field for Hispanics in particular. One of the key challenges that remains is gaining credit and qualifying for loans. Data from the Home Mortgage Disclosure Act found that in 2015, 19.2 percent of Hispanic applicants were denied mortgages, compared to 11 percent of white and Asian applicants. NAHREP research found that 40 percent of such denials for Hispanics are due to high debt-to-income (DTI) ratio and credit history. These consumers agree, telling interviewers that an insufficient credit score, the ability to afford a down payment, and insufficient income for monthly payments are significant barriers to owning a home.

Affordable alternative loan products, and new ways to validate credit, need to be introduced to the market to help Hispanic people and other people of color get on the property ladder and avoid loan products with onerous fees and down payments. NAHREP found that 57.2 percent of Hispanics have conventional financing, compared to 79.4 percent of non-Hispanic homebuyers.

There’s also the issue of cultural competency within the real estate and lending industries, and the shortage of agents and loan officers with experience in the Hispanic market, as well as Spanish fluency.

Numerous nuances and cultural distinctions get missed by those who don’t have experience with Hispanic clients, says Eva Melgarejo, a loan consultant for the national mortgage banker New American Funding. For instance, Hispanic millennials are often more tied to their family, and would rather buy a home for Mom and Dad and live with them before purchasing a condo for themselves. Hispanic buyers often place extra value on homes with garages or the possibility of accessory dwelling units, to allow for the possibility of multigenerational living.

Agents need to be attuned to the additional value that Hispanic buyers assign to stability and wealth creation, says Malgarejo. They’re not about making an investment as much as building a legacy.

“If you don’t know how the community behaves, how can you serve them? “ she says.

New American has expanded its Hispanic workforce over the last five years, says Melgarejo, and now has a diverse workforce that’s 26 percent Hispanic, matching its clientele, which is roughly 25 percent Hispanic.

Overall, the advice from industry experts and researchers was for the real estate industry to reach out to Hispanic homebuyers. NAHREP’s Calderon says that the winning strategy is to recognize the value of courting the larger Hispanic population, but do so in a hyper-segmented, strategic manner.

“For a long time, the market has simply conflated a Hispanic strategy with a Spanish-speaking strategy,” she says. “That’s just not the right way to go.”