Homeownership has historically been a primary strategy to build intergenerational wealth, especially among middle-income households. In California—with the second-lowest homeownership rate in the nation—it’s especially challenging to make this strategy work. Moreover, persistent racial homeownership gaps run deep across the state—and these gaps have contributed to substantial wealth disparities across demographic groups. Given California’s population trends, failing to narrow racial homeownership gaps could have severe consequences for the state’s economic health.
In 2023, the Latino homeownership rate stood at 45.9%, or 18.5 points below that of white households. The Black homeownership rate was even more worrisome at 36.6%, or 27.9 points below the rate for white households. Meanwhile, at 61.5%, the rate among Asian Americans was only 3 percentage points below.
Over the last decade, Asian Americans and Latinos experienced the largest homeownership rate gains across major demographic groups (4 percentage points). The Black homeownership rate also increased, but more modestly (2.5 percentage points). For all groups, homeownership grew fastest in the first half of the decade. Many households, particularly Latino households, took advantage of historically low interest rates during the COVID-19 pandemic; however, the sharp rate increases in 2022 and 2023 stalled some progress. While the gains are good news, the pathway to homeownership remains arduous for many potential Black and Latino buyers.
Most homeowners start as renters who then save their way into buying a house—but when rents are high, chances to save are low. Black and Latino renters are more likely to pay a sizable share—more than 30%—of their household income on gross rent, making the prospect of saving for homeownership daunting. Latino and Black renters are more likely to be cost burdened (63.3% and 56.1% respectively) than their white and Asian peers (52.5% and 47.5% respectively), although housing stress has recently increased more among the latter.
To a large extent, the racial homeownership gap reflects persistent income inequalities, with white and Asian median household income far higher than that of Black and Latino households. For example, median income for white households in California is 34% higher than for Latino households and 57% higher than for Black households. However, income gaps have narrowed in recent years. Since the pandemic, median income has grown among Latino and Black households (4.4% and 2.7% respectively) but has decreased among white households (3.3%) and remained practically unchanged among Asian households (0.2%). These shifts partially explain the increase that we see in homeownership rates, at least among Latinos, as well as the larger increase in the share of cost-burdened renters among white and Asian households.
But other factors, such as less wealth and less intergenerational wealth, lower (or no) credit scores, and lack of information about the home-buying process, also make it more difficult for Black and Latino adults to buy homes. Moreover, the historical legacy of racially discriminatory practices—as well as current racial disparities in the credit indicators that drive lending outcomes—are key drivers of the homeownership gap.
Tackling the challenges that Latino and Black Californians face in achieving homeownership requires a comprehensive approach. Just last month Governor Gavin Newsom signed legislation to help renters build good credit scores. The new law requires landlords of multi-family housing to give tenants the option to opt into having their rent payments reported to the credit bureaus. And in 2021, Fannie Mae decided to allow lenders to consider applicants’ rental payments in evaluating credit risk, a move intended to provide additional benefit to borrowers of color with no or limited credit histories.
In addition to implementing targeted credit scoring adjustments, other short-term actions to assist aspiring Black and Latino homeowners include expanding access to down payment assistance programs, and providing robust financial education.
Over the longer term, addressing the underlying causes of income inequality, such as disparities in educational attainment and access to better jobs, can increase the odds of homeownership—and offer a pathway to building wealth. Moreover, after decades of underbuilding, continued efforts to increase the supply of affordable housing will be necessary if owning a home is to be an attainable goal for middle-class families.
An earlier version of this post was published on May 13, 2022.