A new study shows Black millennials have greatly reduced non-mortgage debt this year from a year ago. But housing affordability remains a struggle.
Some 34% of Black millennials had at least $10,000 in non-mortgage debt this year, representing a significant drop from 60% in 2022, fresh data reveal.
The finding raises the question of whether those millennials erased their debt. It’s possible, but real estate expert Jamie Seale explained it’s more likely that as inflation pushed home prices and interest rates higher, millennials with large amounts of debt dropped out of the home search and postponed their purchase.
Contrarily, 46% of all millennials had a minimum of $10,000 in debt in 2023, down from about 71% last year.
So, Seale shared with BLACK ENTERPRISE, more non-Black millennials will continue their home search while prices and interest rates are high. She is the author of the Millennial Home Buyer Report: 2023 Edition. Individuals quizzed in the report were asked about their homebuying plans this year.
The findings are a big deal because Black millennials (30%) are more concerned than their non-Black peers (29%) about qualifying for a mortgage. She disclosed Black millennials tend to have lower credit scores than their white counterparts and are 2.5 times more likely to be rejected for mortgage loans.
“It’s important for Black millennials to get mortgages to help them afford homes because owning a home is one of the best ways to build generational wealth,” she notes. In 2019, Black homeowners had a median household wealth of $113,130—more than 60 times higher than Black renters.
To help attain homeownership, Black millennials are putting down less of a down payment.
A key reason: Debt is a major hurdle to saving for a down payment, and saving such is one of the top three barriers to buying a home for Black millennials. Some 42% report interest rates are too high and 38% cite both homes being too expensive and saving for a down payment as obstacles.
Around 73% of Black millennials plan to put down less than 20% for a down payment, versus 62% of all millennials. Seale says it is possible that saving for a down payment is more difficult because Black millennials typically earn less than their white counterparts and have more debt.
She made clear Black millennials who don’t put down a full 20% may have a higher interest rate because banks assume more risk. And with less money spent on a home purchase, Black millennials are more likely to buy less costly homes. Seale says nearly 23% of millennials plan on buying a home that costs more than the national median of $455,000, but only 8% of Black millennials plan to do the same.
More specifically, she says, 18% of Black millennials (versus 13% of all millennials) plan to buy a home in the $100,000 to $149,999 range this year. Some 16% of Black millennials (compared to 9% of all millennials) plan to buy a home in the $200,000 to $249,999 range.
Black millennials also are less inclined to risk their money given inflation and high-interest rates make home-buying even more unaffordable. For instance, Seale added 65% of all millennials would buy a fixer-upper, but only 58% of Black millennials would take that gamble. Some 40% of Black millennials fear having to make major repairs, and 39% worry about the hidden costs of homeownership.
Here are some tips Seale offered for buying a home:
- “Expand your search: To stay within budget, Black millennials may need to look at smaller properties or in rural areas or less-demand neighborhoods.”
- “Improve your credit score: In a high-cost environment, qualifying for the lowest possible interest rate will lower your monthly mortgage payment. To improve your credit score, pay down debts and avoid any late payments.”
- Choose a shorter loan term: If you can afford a higher monthly payment, a 15-year loan usually has lower interest rates than a 30-year loan, meaning you’ll pay less in interest over time.
- “Shop around: Talk with several different lenders to make sure you’re getting the best deal and the lowest rate. As interest rates rise, the number of home buyers who need a mortgage has dropped, so lenders will be eager for your business.”
- “Alter your timing: Interest rates fluctuate, if you postpone your search, they may be lower in the future. However, that’s not without risks. Interest rates may continue to rise, as well as inflation. If inflation continues to increase, you’ll save more money by buying now than in the future, when money may hold less value.”
Source: Black Enterprise
Featured image: Photo by Tierra Mallorca on Unsplash