Hispanics Will Be the Majority of New Homeowners by 2040. Can the Market Meet Their Needs?

This year’s trend study from CoreLogic® shows a steady rise in mortgage lending in mainly Hispanic neighborhoods.

Hispanic buyers tend to be younger and less affluent than other buyers across the board. Many are coming into real estate as first-time buyers. They’re motivated. Many will opt for FHA loans if conventional loans are out of reach.

Now, the proportion of Hispanic homebuyers will really surge. That’s because of the young age of this segment of the U.S. population.

Big Trend Over Time

In 1990, Hispanics made up 7% of all buyers under age 65, according to Urban Institute figures. Within the next three decades, their ranks had more than doubled. Now, expect a tripling.

By 2040, a fifth of new home buyers will be categorized as Hispanic. Among first-time home buyers over the next two decades, most will be Latinos/Latinas.

But are mortgage companies ready to accommodate and guide them through the process? While high home prices are a hurdle for most mortgage applicants, Hispanics are impacted more than most. Many of them are young people who’ve never bought homes before.

Even so, the volume of loans issued for borrowers moving into predominantly Hispanic neighborhoods is on an upward trend. Because of the relatively young age of so many of these applicants, lenders expect the trend to expand. Census figures show the median age of U.S. Latinos is about 31. So they make up the youngest cultural category in the nation.

More Debt Vs. Income

Now, why does this group have a harder time getting loan approvals? A lot comes down to debt-to-income (DTI) ratios.

Debt versus income is the main sticking point in most home loan denials. But for Hispanic applicants, this issue is at least 3% more likely to be the key reason for not getting approved for a loan.

National origin is correlated with bias in housing. Discrimination based on national origin offends the law. To learn more, see: We Know It. We Denounce It. So Why Does Bias in Lending Persist?

Last year, the overall mortgage application denial rate was 9%. But 13% of Hispanic applicants were turned down. This compels some of the applicants to turn to nonbank lenders. Off-the-radar lenders typically charge comparable borrowers more money for mortgages than regular banks and credit unions do. Hispanic and other minority applicants pay the highest rates overall for nonbank financing. Needless to say, paying more for a mortgage puts a borrower at a higher risk of default, and whole neighborhoods at higher risk for foreclosures.

Sluggish Returns?

Once Latinos do buy homes, they tend to miss out on a lot of home value appreciation, notes a recent article in The Philadelphia Inquirer. A new study, based on home price information gathered by Dr. Kevin C. Gillen of Drexel University, found that majority-Latino neighborhoods are the hardest hit in this respect.

Versus majority-white neighborhoods, Latino neighborhoods experience a home value appreciation gap so severe, that they’ve lost out on $33 billion in generational housing wealth. If not for the appreciation gap:

Black households that have owned since 1950 would have about $113,000 in additional home wealth today.

A typical Hispanic household would have $157,000 more.

Those totals would be enough to help a young family member apply for a mortgage and put a payment down on another home.

Catching Up

Hispanic households have found a few good ways to make up for lost time and wealth.

Gary Acosta, founder of the Hispanic Wealth Project, part of the National Association of Hispanic Real Estate Professionals, recently told MarketWatch how:

While Hispanic wealth is far less than that of non-Latino white households, Hispanic families were able to increase their wealth significantly during the pandemic — partly because they prioritized homeownership.

Hispanic families are especially willing to live in multigenerational households, pool their resources, and move from city to city, if needed, to find homes they can afford.

Meanwhile, in recent years, Latino businesses are expanding.

Speaking of Categories

It’s important to note that the term Hispanic isn’t actually used by everyone who’s categorized this way.

The U.S. government generally defines the phrase Hispanic or Latino to mean people with origins in Spanish-speaking countries. And yet the two terms — Hispanic, Latino — refer to distinct categories. Hispanics could include people with ancestors in any Spanish-speaking region. Their families might have come from Spain, or from Cuba, or Central or South America. Latinos might include people from the Latin American region, including Brazil, a Portuguese-speaking country.

Putting people in boxes isn’t easy. In some surveys, about half of “Hispanics” prefer to identify themselves by their family’s national origin instead of an umbrella term. One in four, mainly in older generations, do call themselves Latino or Hispanic.

A smaller percentage categorize themselves as American. Some 2% – 3% prefer the term Latinx. Both of these groups consist mainly of younger members of the population. The term Latinx comes out of a growing worldwide preference for gender-neutral language over traditional female / male terminology.

In short, terms and categories involving “Hispanic” identity are in flux.

Looking Ahead

Whether they’re identified as Hispanic, Latino or Latinx, about 64 million people of these combined groups live in the United States today. One in five U.S. residents is now a descendant of a Spanish-speaking county. U.S. Latinos put trillions of dollars into the national economy each year.

What’s more, it’s clear that this population is rapidly expanding the pool of potential real estate buyers. But the group does face a disproportionate share of financial challenges. And it faces structural inequalities associated with many neighborhoods where Hispanics are most likely to live. This will be a matter of growing concern.

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Supporting References

Archana Pradhan for CoreLogic, Inc.: Hispanic First-Time Homebuyer Share Likely to Increase in Coming Years (October 9, 2023). Reposted by theMReport.com (Oct. 11, 2023). Cited data comes from the Home Mortgage Disclosure Act (HMDA) and public records, the U.S. Census Bureau’s American Community Survey, and The Urban Institute, among other sources. See also theMReport.com via TheMReport.com: Share of First-Time Hispanic Homebuyers Projected to Rise in Coming Years, posted by Demetria Lester (Oct. 11, 2023).

Mark Hugo Lopez, Jens Manuel Krogstad, and Jeffrey S. Passel for the Pew Research Center (a subsidiary of The Pew Charitable Trusts) via PewResearch.org: Hispanic/Latino Identity – Who is Hispanic? (updated Sep. 5, 2023; originally published on May 28, 2009, by Jeffrey S. Passel and Paul Taylor).

Michaelle Bond for The Philadelphia Inquirer: The $57 Billion Cost of Racial and Ethnic Inequity in Philadelphia’s Housing Market (published Dec. 22, 2023; citing a December 2023 report by the Economy League of Greater Philadelphia).

Bloomberg News, via Bloomberg.com: Borrowers Turned to Nonbank Lenders for Mortgages (Dec. 18, 2023).

Zoe Han for MarketWatch, published independently from Dow Jones Newswires and The Wall Street Journal:Latino Households Are Growing Their Wealth. Here’s How (Dec. 5, 2023; citing figures from the Federal Reserve Bank of New York, the Hispanic Wealth Project, and other sources).

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