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January 30, 2013 5:00 PM The Racial Wealth Gap Gets a Lot Worse

By Ed Kilgore

It’s become well known in the last decade or so that measurement of racial progress that focus strictly on income (still unequal, but getting less so) differentials miss a critical factor: wealth differentials, based on the vastly higher levels of assets owned by white families as compared to African-American counterparts with equivalent incomes.

Whatever slow progress the country made in reducing the “wealth gap” during the late 1990s into the 2000s was largely wiped out and even reversed during the Great Recession. And much of the reason for that was a racially divided pattern of homeownership that set up African-Americans to bear the brunt of the housing market collapse, as the University of Pennsylvania’s Thomas J. Sugrue explains in “A House Divided,” an important article in the January/February issue of the Washington Monthly.

Here’s a key section of Sugrue’s argument:

Even after the passage of civil rights laws, dozens of studies showed that minorities had a harder time getting access to market-rate mortgages. Moreover, black home buyers were likely to be steered to neighborhoods of older housing stock, often in declining central cities, places where housing values often depreciated rather than appreciated. This meant that blacks, if they were lucky enough to be homeowners, were often trapped in neighborhoods on the margins, economically and politically…. And what has happened since then is even more disheartening.
[A]round the turn of the twenty-first century, there…grew up a huge new industry of predatory lenders that targeted members of minority groups, including those who already owned their homes and were persuaded to refinance on what turned out to be usurious terms. In 2006, more than half of the loans made to African Americans were subprime, compared to about a quarter for whites. And a recent study of data from the Home Mortgage Disclosure Act found that 32.1 percent of wealthy blacks, but only 10.5 percent of wealthy whites, got higher-priced mortgages—those with an interest rate 3 or more points higher than the rate of a Treasury security of the same length.
The bursting of the real estate bubble has been a catastrophe for the broad American middle class as a whole, but it has been particularly devastating to African Americans. According to the Center for Responsible Lending in Durham, North Carolina, nearly 25 percent of African Americans who bought or refinanced their homes between 2004 and 2008 (and an equivalent share among Latinos) have already lost or will end up losing their homes—compared to 11.9 percent of white families in the same situation. This disparate impact of the housing crash has made the racial gap in wealth even more extreme. As Reid Cramer, director of the Asset Building Program at the New America Foundation, puts it, “Basically, we have gone from an average minority family owning 10 cents to the dollar compared to the average white family to now owning less than a nickel.” The median black family today holds only $4,955 in assets.

For African-Americans, digging out of this whole is a daunting prospect. So it’s not surprising they’ve been a bit resistant to Tea Party rhetoric blaming the victims of the housing disaster from causing it.

Ed Kilgore is a contributing writer to the Washington Monthly. He is managing editor for The Democratic Strategist and a senior fellow at the Progressive Policy Institute. Find him on Twitter: @ed_kilgore.

Comments

  • c u n d gulag on January 30, 2013 5:20 PM:

    As that great band, "The Talkng Heads," once said, "Same as it ever wss... Same as it ever was... SAME... AS... IT... EVER... WAS!!!

    There is nothing new under the sun.
    We keep playing the same old game or 'Follyball' - over, and over, again.

    OVER, AND OVER, AGAIN!!! Cha-cha-cha!!!!!!!!!!!!!!!!!!!

  • Peter C on January 30, 2013 5:47 PM:

    Economic downturns don't hurt the rich as much as the poor. While everyone's assets lose value, for the most part, the rich can get by without selling when values are low. Many just adjust their discretionary spending in order to BUY assets at bargain-basement prices. The poor, on the other hand, often have no choice but to sell. Their losses are real; those of the rich are just on paper. When the markets rebound (as they have), the rich are richer than ever.

    Unemployment, after all, if a poor man's affliction; that's why the Republicans aren't too keen on solving it.

  • kk on January 31, 2013 1:06 AM:

    Thank you for calling attention to this. It is the true tragedy of the housing bubble. The 1% can maintain their status through a recession only if they squeeze every nickel that the 99% somehow manage to accumulate. It reminds me of the The Jungle. We need an Upton Sinclair for our era.

  • Charlene Crowell on January 31, 2013 10:27 AM:

    I completely agree with the professor's conclusions. Racial wealth gaps persist despite federal laws calling for equality. Further, for many African-American families to transfer assets to younger generations is seldom a real possibility. Add predatory lending to those already on the lower rungs of the income ladder and you've got very real problems.