Mortgage Rates Continue to Drop — but Not All Buyers Benefit

The COVID-19 pandemic has created a surge in jobless claims, driving the unemployment rate to 14% in April. Although the percentage dipped to 8.4% in August from 10.2% in the previous month, employment still remains far below the pre-pandemic level. Surprisingly, despite this ongoing unemployment crisis, the real estate market is thriving. Record low mortgage rates have increased demand in housing as many seek to apply for mortgages or refinance their loans. Nevertheless, Black candidates don’t equally benefit from these rates as systemic racism continues to pose eligibility constraints to obtain a mortgage or refinance. Mortgage rates recently hit their new-all time low for the ninth time this year, continuing to fuel fast growth in home prices. Early last week, the Federal Home Loan Mortgage Corporation issued the results of its Primary Mortgage Market Survey, reporting that the average interest rate for a 30-year fixed-rate loan fell from 2.93% to 2.86%. This is the lowest level in 50-years of data tracking, with the previous record set in August at 2.88%.

These low quotes increase demand as homeowners can now reduce their monthly payments and interest costs. Buyers take advantage of these unprecedented rates to buy homes with more square footage and to leave urban centres for rural or suburban areas as it becomes evident that working from home will the new normal in the post-pandemic world. Richard Florida, a University of Toronto Professor, mentions that “What the pandemic has done is taken formulation moves that might have been compressed into one, two, three, four or five years and compressed them into one, two, three months.” Prior to the pandemic, urban dwellers had been wanting to move away from large cities since they were affected by mass protests and more progressive tax policies. This exodus from cities has contributed to an increase in suburban home prices as supply becomes limited. For instance, in the New York commuter belt, real estate prices rose over 30% over the past year while in Manhattan sales contracts plunged by 31%. Despite this price rally, buyers remain incentivized to purchase homes in suburban areas due to low interest rates and concerns over health risks in packed urban cities. Additionally, refinancing originations have risen amid decreasing mortgage rates. Black Knight, a mortgage data firm, shows that there are now more than 19.3 million high-quality refinancing candidates. However, not all Americans benefit from these lower rates, most notably people of colour.

Online lending marketplace LendingTree shows that Black home buyers tend to receive higher mortgage costs than other applicants. Moreover, a survey conducted by Zillow indicates that Black buyers were denied a loan 80% more often white applicants. Black applicants may be denied mortgages because they statistically tend to have lower incomes and lower credit scores and as a result tend to live in lower-income neighbourhoods – largely caused by decades of racial inequality. That being said, economic factors are not the only reason behind the wide gap in homeownership - direct discrimination plays a big role in this as well.

As more and more Black homebuyers report their individual experiences with qualifying for mortgages, it becomes evident that they should not be disclosing their race with lenders. By not requiring applicants to mandatorily provide racial information in the refinancing process, online mortgage marketplaces reduce discrimination by 40% ­– although Blacks still paid more than their white counterparts. A recent analysis conducted by University of California Berkeley indicates that people of colour are charged 0.08% more than non-coloured buyers in face-to-face transactions. On top of this, online applications do not reduce all forms of discrimination. In fact, AI-powered algorithms also discriminate as these platforms use historic mortgage data which is already inherently biased. Tendayi Kapfidze, Chief Economist at Lending Tree, states that “People might say the disparity is not because of lending discrimination but because of economic differences – but that’s backwards. It’s all because of discrimination.” In a country plagued by systemic racism, Black homeowners continue to face discrimination despite not disclosing their race – signalling their inability to access equal lending opportunities as a result of decades of oppression.