Monday, October 30, 2017

The Housing Racial Gap

http://www.citylab.com: September 22, 2017


Hello Everyone:

Blogger is back from the air conditioned undisclosed location and happy to report that Autumn has finally arrived in Southern California.  Yay.  Blogger's return coincidences with a very busy news.  First and foremost, the big news of the day is indictments in Russia.  Special Counsel Robert Mueller has obtained indictments against former Trump campaign manager Paul Manafort, his associate Richard Gates, and foreign policy advisor George Papadopoudolos on charges of lying to Congress and money laundering, acting as a foreign agents, and failing to disclose foreign accounts.  Mr. Papadopoudolos pleded guilty to the charges against him.  All three have turned themselves in, denying the Galaxy of "perp walk" pictures.  The White House's whole "the-Democrats-Hillary Clinton-were-colluding-with-the-Russians" defense is falling apart brick-by-brick. 

 Second viral Internet story of the day; this one involving Kevin Spacey, the fictional President of the United States.  Yesterday, Star Trek: Discovery actor Anthony Rapp accused Kevin Spacey, "President Francis Underwood" on the Netflix crown jewel House of Cards, of trying to commit statutory rape in 1986.  Mr. Spacey was 26 and Mr. Rapp was 14 at the time.  Today, Mr. Spacey issued something that resembled an apology, saying he could not recall the incident and-the bombshell-admitted to being a homosexual; something that was an open secret.  The problem with his sort-of apology is that he fell back on the old stereotype of homosexuals-as-paedophiles.  Wow, that is definitely a new one for Yours Truly, using your sexual orientation as an excuse for your hyper-active libido.  Unbelievable.  Was it coincidence that Netflix used this moment to announce that House of Cards was ending after next season?  Stay tuned.  Now onto the Racial Wealth Gap.

Does housing make the racial wealth gap greater?  This is question that Joe Cortright, the director of City Observatory, asks in his article printed in CityLab "How Housing Intensifies the Racial Wealth Gap."  It is a fascinating subject to ponder, one that Emily Badger wrote in her article, "Whites Have Huge Wealth Edge Over Blacks (but Don't Know It)"  in The New York Times (nytimes.com; Sept. 18, 2017; date accessed Oct. 30, 2017).  Ms. Badger reported on a new study that demonstrated "...just how much Americans (especially white Americans) underestimate the gap in the economic ththathacircumstances between black and white families."  

The Times article is based on the study from Yale University's Michael Kraus, Julian Rucker, and Jennifer Richeson, titled Americans misperceived racial economic equality (pnas.org; date accessed Oct. 30, 2017).  The study is a comparative analysis of perceptions of earnings, income, and wealth gaps between Caucasians and African American with information from the Census Bureau.  Mr. Cortright reports, "The headline finding is that the average respondent thinks that black wealth is about 80 percent of whites; whereas Census data suggest that black wealth is about 5 percent of whites."

Let us take a closer look, for a moment, at the issue of wealth disparity. Mr. Cortright writes, "While we have multiple measures of income, we actually have relatively few measures of wealth of American households."  One survey taken by the Census Bureau ("Survey of Income and Program Participation, SIPP) focuses on the questions of financial holdings and debts.  Another survey conducted on a triennial basis ("Survey of Consumer Finance).  This survey asked more specific questions about investments, banking activity, credit, automobiles, home ownership, and related matters.  Mr. Court right points to a "...terrific analysis by the Federal Reserve's Jeffrey Thompson and Gustavo Suarez entitled "Exploring the Racial Gap Using the Survey of Consumer Finances" (federalreserve.org; date accessed Oct. 30, 2017).

City Observatory plotted the information from Messr Thompson and Suarez's survey for the period 1989 through 2013 to track the median net-worth of African American and non-Latino Caucasion households.  The date is presented in 2013 dollar amounts.  The red line on the chart, accessible at  http://www.citylab.com; September 22, 2017, represents the net worth of African American households , the blue line signifies non-Latino white households (amounts on the left axis), the gray bars corresponds to median net worth of African Americans "as percentage of the median net worth of non-Hispanic white household (measured on the right axis).

Joe Cortright points out a couple of observations: "First: as of 2013, the net worth of the typical household hadn't rebounded to pre-recession levels."  This observation held for both surveyed households.  Next: "But the decline for black households was proportionately greater than for whites.  The median net worth of black families fell 42 percent from $19,200 in 2007 (on the eve of the Great Recession) to $11,100 in 2013.  The median net worth of white families decline as well, by only 27 percent, from $183,500 in 2007 to $134,100 in 2013."

Second observation: "as we look back at the longer historical record it, was quite clear that during the 1990s in particular, black households were actually closing the wealthy gap with their white counterparts."  For example, in 1989, the average African American household had a net worth than was only 5.6 percent of the typical Cauaasian household.  However, by 1998, African American households' net worth was 16.3 percent of Cauasians.  African American households treaded water around the turn of the millennium, early naughts, and seriously lost ground relative to their Caucasian counterparts during the Great Recession.  "Today average black wealth stands at just 8.3 percent that of whites (This figure is slightly higher than the 5 percent reported in the The New York Times story; excluding the value of owner-occupied home, the SIPP [census.gov; date accessed Oct. 30, 2013] reports that black wealth is about 5.3 percent that of white households in 2013)."

How do you explain this?

Some of the reason for this disparity is connected to the housing market, housing policy, the housing cycle.  Households with good access to credit before the housing bubble burst were in good position to take advantage from the spike in housing prices-Mr. Cortright adds, "and note that white net worth outpaced black from 2001 onward." Mr. Cortright explained in a post on City Observatory (cityobservatory.org; July 18, 2016; date accessed Oct. 30, 2017), "Homeownership: A failed wealth-creation strategy," "low income households generally, and households of color in particular tend to suffer from bad market timing: buying a home later in the housing cycle (when prices were higher) exposed them to more risk when housing markets collapsed."  Further, housing represent a larger portion of the net worth of low-income households and households of color, thus when housing prices plummeted, they were more adversely affected than the average Cauasian households ("which had a much more diversified wealth portfolio").

Joe Cortright notes "There's also an important spatial bias in black household homownership.  Black households tend to buy and own homes in neighborhoods with greater price volatility, especially on the downside."  The real estate website Zillow posted a good article written by Skylar Olsen, titled  "A House Divdided-How Race Colors the Path to Homeownership" (zillow.com; Jan. 15, 2014; date accessed Oct. 30, 2017) which demonstrated how the bust in the housing market generated sharper and more prolonged declines in home prices for households of color than for their Caucasian counterparts.

The point is "...while it's certainly true that white households have a huge (and widely under-estimated) edge in wealth, it's not the case that we have not made progress."  The nineties stood out a period in which the wealth of of African American households significantly increased relative to Caucasian households.  Mr. Cortright observes, "What's remarkable is that the housing bubble and the Great Recession essentially erased all of the relative gains in black household wealth from the 1990s."  The lesson of the past two decades appears to be "encouraging greater homeownership is not just ineffective in reducing the racial wealth gap, but is actually counterproductive" (cityobservatory.org; July 19, 2016; date accessed Oct. 30, 2017).

One final observation: "As startling as the wealth gap is between blacks and whites, its even sharper between owners and renters."  According to Census Bureau data, "the median net worth of a homeowner in the United States was $199,600.  The median net worth of renters is $2,200, barely 1 percent of that amount." (census.gov; date accessed Oct. 30, 2017).  The disparity between owners and renters speaks volumes to the policy iniatives and preferences for homeownership as an investment (cityobservatory.org; Aug. 22, 2016; date accessed Oct. 30, 2017).  However, it also demonstrates "that we have little if anything to offer in the way of a wealth-building strategy to the 33 to 40 percent of the nation's households who ren their homes."  Taking into account the financial risks of homeownership for those of modest means, Mr. Cortright recommends that we ought to be "devoting more attention to mechanisms to help families build wealth without having to long in the real estate market."