Millennial Latino homebuyers are key to housing's future
The number of U.S. households is expected to reach 13.6 million between 2015 and 2025, with 75% of the growth during that period driven by minorities in general and one-third of that growth by Hispanics, according to NBC, citing data from Harvard University’s Joint Center for Housing Studies.
Just over half (51%) of 25- to-34-year old non-Latino white millennials were homeowners in 2013, while just 27% of Latinos owned a home that year, according to Young Invincibles research.
Future homeownership rates depend on whether Latino millennials can afford to buy, as the Latino population and share of the workforce is growing. Currently, approximately 14.6 million Latinos are part of the millennial generation, the Pew Research Center reported.
It’s crucial to the housing market as a whole homeownership be accessible to the Latino population. The Urban Institute predicts that Hispanics will account for more than half of the households formed between 2020 and 2030, but in 2013 just 45% of Hispanic households owned the home in which they resided.
If the Hispanic market is going to lead the country in homeownership, as the Urban Institute forecasts, access to credit will need to improve. The credit market is currently getting tighter, which will particularly effect Hispanic homebuyers, who average lower credit scores than white buyers. In 2015, 19.2% of Hispanic mortgage applications were rejected, according to the Pew Research Center. That’s compared to 27.4% for black applicants and 11% for white and Asian applicants.
The reason for rejection most often cited by lenders was that the applicant's debt-to-income ratio was too high (26%). The same report revealed the number of Hispanic mortgage applicants dropped dramatically in a decade. In 2005, Hispanics made up 14% of all applicants for conventional mortgages. By 2015, they accounted for less than 7% of applicants.
Even if credit becomes more accessible, there is still the issue of a lack of supply of affordable homes. Entry-level housing inventory fell 15.6% year-over-year in Q2 2017 while that category’s market share slipped from 23% to 22.2% for the period, according to Trulia. Meanwhile, buyers in this category spend 39.1% of their annual income on a home versus 31.7% of their income five years ago.
Despite the difficultly accessing credit and general lack of affordable housing in the market, there is still the opportunity for the Hispanic market to lead the charge in homeownership going forward. The National Association of Hispanic Real Estate Professionals announced earlier this year that Hispanics were the only ethnic demographic to increase its homeownership rate, growing from 45.6% in 2015 to 46% in 2016. The overall U.S. homeownership rate was 63.4% in 2016.
The organization cites Hispanics’ strong workforce participation, desire for homeownership, efforts from companies targeting Hispanic homebuyers and an increase in Hispanic entrepreneurs in mortgage banking and real estate brokerages as reasons for the growth.