Jones, 48, plans to build equity by buying a home in the South Phoenix neighborhood where she grew up. Instead, she’s on the sidelines, facing skyrocketing rents and struggling to restart the process of finding her place.
“It was very frustrating, very frustrating,” Jones said. “It’s the American dream. Once you buy a house, you feel like you’re done.”
The market is pricing in first-time homebuyers of all backgrounds, but black buyers face an even bigger hurdle.
According to a Zillow analysis of Residential Mortgage Disclosure Act data, black applicants are denied housing loans at a much higher rate than other groups. In 2020, nearly 20% of black applicants were denied a mortgage, compared with 10% of white applicants. Credit history is the most common reason black applicants are rejected.
But there are currently few projects that can help Jones and other potential buyers who are struggling to afford a home.
This creates a huge hurdle in the current red-hot real estate market, where investors with cash bids are buying more properties than ever before for renting out or flipping. Investors bought a record 18.4% of U.S. homes in the final quarter of 2021, up from 12.6% a year ago, according to a Redfin analysis of county records.
In Phoenix, investors were particularly active, purchasing 28.4% of properties during the same time frame.
Jones spent almost a year trying to buy her first home there. She has started saving and has been approved for an FHA loan with a 3.5% down payment. But with less than $6,000 reserved for the down payment, Jones was unable to compete and eventually dropped out of the search.
“Every time I make an offer, every time I go to see something, I have a high bid, or someone has already snatched it,” Jones said. “I just put it on the back burner because I can’t afford what’s out there right now.”
Jones’ real estate agent Maisha Fair said many of her clients in Phoenix face the same predicament.
“They can’t afford it anymore. They’re stuck in the rental market,” Fair said. “It hurts the people who live here.”
Some experts expect these market conditions to widen the racial homeownership gap.
Census data show that nearly 45 percent of black households own their own home, compared with 74 percent of white households. This disparity has barely changed since the Fair Housing Act outlawed housing discrimination in the 1960s.
“Unfortunately, the homeownership gap has actually widened,” said Jessica Lautz, vice president of demographics and behavioral insights for the National Association of Realtors. “The pandemic has exacerbated everything. When we look at the inequality of homeownership, we do see that it is more difficult for black home buyers to enter the homebuying market because they have been hit harder by the pandemic.”
“The homeownership gap will exacerbate the wealth gap,” said Andre Perry, a senior fellow at the Brookings Institution. “When people don’t buy a home, it just makes it harder for future generations to buy a home… Income, from buying a home. .”
Soaring rental costs could further widen the racial wealth gap and displace more people.
U.S. rents hit record highs in April and are expected to continue rising. According to a Realtor.com report, the national median rent is $1,827 per month, up 16.7% from a year ago.
“The market is definitely accelerating gentrification,” Perry said. “It really means people are going to be pushed into low-wealth, low-resource suburbs. People are going to stay away from jobs and families are going to struggle.
In Phoenix, real estate agent Maisha Fair said investors aren’t just buying properties — they’re pushing up rents to the point where families are forced to move.
“They can no longer live in the neighborhoods where they know their neighbors,” Fair said. “The investors who came in and bought these homes for cash are now renting to people who want to buy,” Fair said.
Jones’ rent in Phoenix is rising by $400 a month. A few months after losing her job, she ran out of the $6,000 she had set aside for a down payment. Now, she’s more focused on making ends meet than making her dream of buying a home a reality.
“It’s all money … I can’t even afford to live there,” Jones said. “So, yeah, it’s heartbreaking.”