In February, the U.S. Census Bureau released its homeownership report which indicated that 2019, like the four years that came before it, was a positive year for Hispanic homeownership.
Hispanics have been driving homeownership growth in America for more than a decade, a trend that is likely to continue, according to the data.
This past year, Hispanics added 277,000 new homeowners, increased their total number of households by 435,000, expanded their labor force participation rate and raised their median household income. NAHREP’s 2019 State of Hispanic Homeownership Report, released in April, documents these trends in detail.
However positive the data was in 2019, 2020 will be different, and not just for Latinos. This year will present a new set of economic challenges that will disrupt the housing market, possibly for years to come. The COVID-19 pandemic presents a unique economic crisis that is substantially different than those we’ve seen in past recessions. With record-high unemployment and a rapidly diminishing consumer confidence, the housing market, like almost all others, will undoubtedly take a substantial hit. While no one knows how deep or long this recession will last, it is all but certain that when this is all over, the fundamental trends that have driven Hispanics to lead the way in terms of homeownership growth will help lead the nation to recovery.
Demand side: How Hispanics are driving homeownership growth
The Hispanic population has consistently demonstrated a passionate desire for homeownership. The one factor that distinguishes them from other demographics is age. Hispanics are young: on average, they are almost a decade younger than the overall population and 15 years younger than their non-Hispanic White counterparts. Quite simply, Hispanics are just now aging into prime home-buying years, while the majority of the population is aging their way out.
There are currently 59.9 million Hispanics in the U.S., about 18.3% of the overall population. Over the past 10 years, Hispanics accounted for more than half of the total U.S. population growth. Contrary to popular belief, this growth has predominantly come from native births, rather than immigration. In fact, for the nearly 20 million Latinos under the age of 18, a full 94.3% are U.S.-born. The youthfulness of Latinos is driving them to form new households as they age into adulthood, one of the main precursors to homeownership.
Over the last decade, Hispanics accounted for 40.4% of the net household formation growth in America, adding 4.3 million new households. The growth in both new households and owner households contributes substantially to the U.S. GDP. In 2018, the National Association of Home Builders estimated that housing made up 16.3% of the overall U.S. GDP, or nearly $3.4 trillion dollars. Over the last two decades, the Hispanic contribution to housing GDP grew, significantly outpacing the overall market. Over that time period, Hispanics more than tripled their monetary contributions to housing GDP, while the overall market was just shy of doubling.
NAHREP’s State of Hispanic Homeownership Report also tracks barriers to homeownership. On the surface, Hispanics tend to have lower credit scores, higher debt-to-income ratios and lower incomes than the overall population. But as Hispanics get older, their credit characteristics improve. Hispanics also tend to live in higher-cost areas like California, New York and Florida. However, data from Freddie Mac shows that some of the fastest-growing Hispanic populations are located in more affordable areas of the South and the Midwest.
Opportunities to advance Hispanic homeownership growth
Given much of the future of housing demand will squarely rest within the Hispanic community, our entire industry would benefit from a few policy and industry tweaks that will allow even more Hispanics to participate in homeownership. In partnership with Freddie Mac, NAHREP’s 2019 State of Hispanic Homeownership Report identified three strategies to reach the Hispanic consumer: a millennial approach, geographic approach and a human resources approach. As an industry, we have to be better at serving the Latino market in a way that works for them, and that means not solely relying on marketing materials translated into Spanish. The first strategy for recruiting new Hispanic homeowners is focusing on those we have dubbed “Mortgage Ready Millennials.”
The report defines “mortgage ready” as non-mortgage owners aged 37 and younger in 2018, who have credit characteristics that could qualify them for a mortgage, such as a FICO score over 620, a debt-to-income ratio at or below 25%, no foreclosures or bankruptcies in the prior 84 months, and no severe delinquencies in the prior 12 months.
In 2018, there were 4.9 million of these mortgage-ready Hispanic Millennials across the U.S. and many of them live in housing markets that currently have an adequate supply of housing stock. The report features the top 20 markets with the most mortgage-ready young people who could afford the median-priced home in the market, ranked by the availability of housing inventory. Notably, Texas topped the list with five of the Top 20 markets, likely due to its more affordable cost of living, but more expensive cities such as Miami, Philadelphia, Los Angeles and Chicago also made the cut. Beyond just focusing on the younger generations, the industry can look to Latino migration patterns to identify up-and-coming Latino housing hubs.
The second strategy outlined in the report is to identify where the future buyers are today, and where they are possibly headed. The report provides Latino migration data for every state in the U.S., along with Puerto Rico and Washington, D.C. Between 2015 and 2018, Latinos migrated from some ultra-high-cost states like California and New York, each losing 205,000 and 191,000 Latinos respectively. Texas, as noted above, has benefitted from an influx of Latinos with the highest number of domestic migrants at 102,000. What is worth noting, however, is that non-traditional Hispanic markets are booming as well, with states like North Carolina (which added 34,000 Hispanics), Washington (added 42,000) and Georgia (added 34,000) seeing substantial growth to their Latino populations.
The final strategy might be the most important of them all; investing in people. In this year’s report, NAHREP surveyed top-producing Hispanic real estate agents and asked them questions about their Latino buyers in 2019. When asked how they got their clients, they overwhelmingly answered that personal relationships, referrals from previous clients or people they know, were the No. 1 way they got new business.
These top producers also serve predominantly Latino clientele. Over half of those surveyed reported that at least 60% of their clients are Latino, and more than a third reported at least 81% of their clients are Latino. That’s pretty remarkable, but not all that surprising.
Buying a home is often the largest financial transaction families engage in during their lifetime. It is also one of the most overwhelming and confusing processes, even for the most educated. When experience, language and cultural barriers are added to that equation, the process is even more challenging. NAHREP challenges the industry to recruit more Latinos as leaders and employees.
The number of culturally competent Latino real estate agents and mortgage professionals will need to double in the coming years to meet the growing demand from Hispanic homebuyers.
The companies that meet this challenge will undoubtedly capture the majority of this new business.
Supply side: Record low inventory will likely worsen
While the COVID-19 pandemic is throwing a wrench in the economy for all populations and market segments, there are pre-existing systematic barriers within the housing market that will likely continue, if not get worse. The No. 1 barrier to homeownership growth today is tight housing inventory, especially in the more affordable price points.
In 2019, the U.S. Census Bureau reported a record low homeowner vacancy rate at 1.4%, matching the lowest level ever recorded in 1993. Zillow reported that in December 2019, there were 7.5% fewer homes on the market than the year prior, the lowest ever recorded by the group since they began collecting housing data.
Housing professionals know that there is no silver bullet that will solve the inventory problem. Experts believe that restrictive zoning presents the biggest challenge to new home construction, but building regulations are complicated and predominantly exist at the local level. Nationwide, labor shortages have also put a damper on new construction. Ever-tightening immigration policies have only exacerbated the problem. In the aftermath of the pandemic, these problems may get worse before they get better.
The National Association of Home Builders underscores the realities surrounding an extreme labor shortage in the construction industry, with the majority of builders reporting substantial unfilled labor needs in some of the most critical jobs for housing production. In partnership with NAHB, the 2019 State of Hispanic Homeownership Report outlines the role that both Hispanics and immigrants play in the construction labor market, where both populations make up a substantial share of the overall pool of workers. In 2018, Hispanics made up 29.5% of the construction workforce. In states with high Latino populations, Hispanics make up more than half of the construction labor pool, such as California at 54%, Texas at 60%, and New Mexico at 66%. Nearly a quarter of construction workers are also immigrants.
Moving forward in a new economic reality
2020 has been extraordinary. The health and economic effects of the COVID-19 crisis will have a lasting impact on our society that is difficult to quantify. While the housing industry will experience a setback, it is unlikely to be a repeat of 2008, when subprime lending artificially inflated a fundamentally weak market. Today’s market is just the opposite: With nearly 12 million new households added over the last 10 years, record low housing inventory, and subprime lending all but disappeared, housing demand coming out of this crisis will likely remain strong.
While NAHREP’s homeownership report is an analysis of the 2019 activity, the economic and demographic fundamentals articulated will remain relevant in the aftermath.
Hispanics are by far the youngest and fastest-growing demographic, and they have the highest labor force participation and household formation rates in the country.
As a community, Hispanics are hardworking, resilient, and have a drive for homeownership that has led them to achieve half a decade of positive growth. While there are many factors that will influence the severity of the current recession, it is a certainty that the Hispanic community will play a critical role in the revitalization of the post-pandemic economy.
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