Higher interest rates are a disaster for racial housing gaps
According Urban Institute authors Michael Neel and Daniel Pan, the current environment of rising interest rates has important implications for the wealth gap between white and black or Hispanic households. While the “standard narrative” is that higher interest rates, especially when combined with higher house prices and stagnant or even lower incomes, reduce the affordability of households of color relative to to white households.
“This in turn implies that these households of color will find it has become more difficult to access homeownership, thereby widening the racial wealth gap,” the authors said. “This report shows that under a regime of higher mortgage rates, the rate of principal reduction is slower for most of the life of a 30-year fixed rate mortgage.”
Using family housing in Newark, New Jersey as a sample, the report also finds that black and Hispanic households buying property in the city typically receive less favorable interest rates than their white counterparts.
To sum up, the authors suggest that local policymakers value the benefits of interest rate buyouts as a way to subsidize affordability, close racial wealth gaps in housing, and better insulate historically marginalized communities from macroeconomic shocks. .
To view the full report, Click here.