Disparity in household wealth between whites, blacks, and Hispanics widened to its largest gap since the government began collecting the data almost 25 years ago, according to a recent Pew Research Center study. Experts blame the accelerated growth in the wealth gap on the housing market collapse, which disproportionately impacted geographic regions heavily settled by minorities, particularly Hispanics.
White households had nearly 20 times the median wealth of black households and 18 times that of Hispanic households, the study showed, ratios roughly twice those that prevailed among the groups for the past 20 years.
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"There's a big, big connection between what's happened in housing and wealth disparity," says Nariman Behravesh, chief economist at IHS Global Insight.
And while the Great Recession left few unscathed, the ravages of the downturn disproportionately affected minorities: inflation-adjusted median wealth fell 66 percent among Hispanic households and 53 percent among black households, compared with just 16 percent among white households. As a result of these declines, the typical black household had just $5,677 in wealth in 2009, the typical Hispanic household had $6,325 in wealth, and the typical white household had $113,149.
The culprit of sinking household net worth is the shattered housing market and plummeting sale prices, experts say. From its 2006 peak, home prices have dropped more than 30 percent on average, obliterating the home equity many homeowners depended on, minorities in particular.
"Minority households depend more on home equity as a source of wealth," says Rakesh Kochhar, Associate Director for Research at the Pew Hispanic Center and co-author of the study. "Hispanics for example: two-thirds of their net wealth comes from home equity. For white households, it's something like 45 percent."
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By virtue of geography and profession, Hispanics have been slammed by the housing downturn, with the median level of home equity falling by almost half, to just under $50,000, the study reported. In 2005, more than 2 in 5 of the nation's Hispanic and Asian households resided in Arizona, California, Florida, Michigan, and Nevada, the five states with the steepest declines in home prices. By contrast, only about 1 in 5 of the nation's white or black households resided in these states.
"Hispanics are more affected by the downturn because they were more exposed to the bubble simply because of the geography, partly because they actually followed the housing bubble for construction jobs," Kochhar says. "When construction jobs disappeared, they also were disproportionately hit."
Another element exacerbating the situation is the fact that fewer Hispanic and black households invest in financial products such as stocks, mutual funds, and 401(k)s. So, while the stock market has enjoyed a substantial run-up over the past couple of years, few minority families have benefited, especially while house prices have continued to hobble along the bottom.
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"In terms of stock holdings, the top 25 percent of households hold stock, but most of the rest of the wealth in the rest of the country—middle- and lower-income families—is in housing," Behravesh says. "Most of their wealth is tied up in their homes."
While the dates don't line up precisely, the study, which included data from the U.S. Census Bureau's Survey of Income and Program Participation, captures the brunt of the impact of the Great Recession, and shows hairline cracks in the ideal of homeownership as the American Dream. What was once considered an almost untouchable asset has been shaken to the core by the global financial crisis, and minority homeowners have shouldered most of the burden. While experts expect price decreases to level off by the end of the year, that's little consolation for homeowners who will likely have to wait many years to recoup the equity they lost.
Twitter: @mmhandley
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