Sacramento Bee
By Phillip Reese

When Time magazine named Sacramento the most diverse city in America in 2002, African American families living here still participated broadly in the American dream of owning a home and building wealth.

It was a long-standing pattern. For 45 years starting in 1960, around 40 to 50 percent of African Americans in Sacramento County owned their homes, census figures show. By the turn of the century, the black homeownership rate in Sacramento County was higher than the statewide average and higher than other California urban centers such as Los Angeles and San Diego.

Those days have passed.

Just 27 percent of black householders in Sacramento County owned their homes in 2015, down from 43 percent in 2006, according to the latest U.S. Census figures. By comparison, 62 percent of whites and 43 percent of Hispanics in the county owned their homes in 2015.

Blacks are also losing ground elsewhere; their homeownership rate fell nationwide from 46 percent in 2006 to 41 percent in 2015. But the trend is particularly severe in Sacramento. Only 13 of the largest 100 counties in the United States had a lower black homeownership rate than Sacramento County in 2015, census figures show.

“The (2008) financial crisis hit black families the hardest,” said Vedika Ahuja, economic equity interim director at the Greenlining Institute, which advocates for communities of color. “More than half of their wealth was wiped out.”

Multiple factors explain the declining numbers. Blacks in Sacramento County tend to have lower incomes than other ethnic groups, a growing hardship as housing prices rise. A disproportionate number also took out subprime loans during the boom and subsequently lost their homes during the bust. Many still have poor credit as a result.

At the same time, banks have tightened lending standards. The supply of affordable housing and down payment assistant programs have dwindled.

Rosalinda Jackson moved from Oakland to Sacramento a couple of years ago, hoping to escape crime and outrageous home prices while taking advantage of a down payment assistance program. She’s still trying to get into that program – and still renting.

“I know the importance of home ownership,” said Jackson, 54. “I want to leave my children with something. I want to have somewhere where I can bring my grandchildren and they will be safe.”

Jackson and thousands of others would likely be wealthier today if they owned a home.

A large portion of household wealth in Sacramento County is tied to real estate. Median home prices have nearly doubled in the last five years and are approaching levels seen at the height of the housing boom. Many black families have lost those financial gains to investors who bought their homes after foreclosure.

At the same time, rents have jumped in Sacramento and across California. Since so many blacks pay rent today instead of a mortgage, they have been hurt the most by rent increases.

Beyond economics, falling homeownership rates can have larger societal impacts, such as a loss of neighborhood pride or the motivation to make a home look its best.

In a neighborhood full of renters, “things go unmanaged, and it starts to deteriorate over time,” said Pamela Smith, a longtime Sacramento real estate agent and president of the Sacramento Realtist Association, an industry group.

“When someone owns a home, you are part of the community,” she said. “You can protect your community. You protect your house. You protect your neighbor’s house. By protecting it, you have less crime, the entire neighborhood is clean.”

Foreclosures hit hard

The loss of homeownership status among black residents of Sacramento can be traced to the housing bust of 2007 and 2008. Sacramento County’s black residents back then lost their jobs at a higher rate than other groups. Subprime lenders also targeted black households when marketing their loans, which carried high interest rates and often required balloon payments.

John and Norma Cranshaw took out a subprime loan on their south Sacramento home in 2006 after John was laid off from his job in a drug rehabilitation clinic. The representative for their lender told them the high loan payments were not a problem, given that rising home prices would keep increasing their equity, John Cranshaw said. (The lender got out of the subprime business a few months later as home prices began to collapse.)

“They said they would be there to help us,” said John Cranshaw, 69. “Once they got the money, they were gone.”

The Cranshaws held out as long as they could after taking out the loan, not wanting to lose the home they had owned since the 1980s. But the payments were too high.

Their home sold at auction to an investor in 2008 for $68,000, public records show. John Cranshaw remembers the investor knocking on his door before the auction, asking if he could see the place. Cranshaw said no, but the investor promised that he would let the Cranshaws rent their home after he bought it. John relented. The investor saw a home in great shape, with multiple recent updates.

Less than two months after purchasing the home, the investor flipped it for $130,000, almost double its auction price, public records show. It is valued at roughly $250,000 today, according to real estate tracking firm Zillow.com.

The Cranshaws rented from the new owner for about a year, and now live in a rented apartment in Natomas. “I think we probably would have stayed there if all the different things hadn’t happened,” said Norma Cranshaw, 73. “We didn’t really want to move. An apartment is limited space.”

About 44 percent of loans sold to area blacks during 2005 were subprime. That’s nearly twice the rate of subprime loans sold to all other races.

Within a few years of the origination of those loans, Oak Park, Valley Hi, Lemon Hill and other minority-dominated areas became the epicenter for local foreclosures, converting scores of owners to tenants.

Those who defaulted on their high-interest loans saw their credit ratings shattered. Without their primary source of wealth, many blacks have struggled to rebuild credit, making it hard to get a new mortgage. Lenders have proven reluctant in the years since the recession to make loans to low- and middle-income families without stellar credit.

“These things stick with you,” said Sheryl Pardo, spokeswoman for the Housing Finance Policy Center at the Urban Institute. She pointed to 2001, just before the boom, as a benchmark for when banks gave out loans at a sensible pace. “It’s twice as hard to get a mortgage today as it was back then.”

Many local blacks aren’t even trying.

The Sacramento region’s black households applied for about 1,700 loans to purchase homes in 2015, according to the Federal Financial Institutions Examination Council. That’s about 11 applications per 1,000 black residents – barely half the application rate among non-blacks.

After applying, local blacks were denied home loans about 40 percent more often than nonblacks, federal data show.

Rising rents

Many black families don’t apply for loans because they don’t have enough saved for a down payment. Even with good credit, an FHA loan requires a 3.5 percent down payment. On Sacramento County’s median-priced home, that equates to about $11,000, not including loan closing costs. For buyers with poor credit, a 10 percent down payment is required.

A veteran and former correctional officer, Rosalinda Jackson can afford to pay up to $1,000 a month on a mortgage, but doesn’t have the cash necessary for a down payment. She applied to take part in a program through NeighborWorks that enlists residents to build their own homes in lieu of a down payment. But she doesn’t know if she will receive approval due to income limits on the program. She doesn’t qualify for programs that help veterans because she did not serve long enough.

Jackson believes she would need about $25,000 for a down payment without assistance.

“I don’t think I would make it,” she said.

The median household income of blacks in Sacramento County was about $39,000 in 2015, about 20 percent lower than their median income in 2006, after adjusting for inflation, census figures show. (The 2015 median income for the county’s white residents was $67,000.)

While black families are making less, home prices continue to rise. A typical black household with good credit would need to spend half its gross income on a mortgage and property taxes to afford the median-priced home in Sacramento County.

“It’s very hard for people,” said Pam Canada, CEO at NeighborWorks Sacramento Region. “There are not enough homes in the affordable price ranges.”

Even as blacks own fewer homes, they spend more of their income on housing. That seeming paradox is largely due to rising rents: Median rent for a two-bedroom unit in Sacramento County has risen by about $300 in the last five years to $1,400 a month, according to Zillow.

About 30 percent of local blacks spend more than half of their gross household income on housing each month, leaving little for food, health care, transportation or other essentials of living, census figures show. In 2000, about 22 percent of black householders spent that much.

Money spent on rent disappears into the pocket of a landlord. Alternatively, a portion of the money spent on a mortgage builds equity in a house.

Local black families who went from owning a home to renting one have collectively lost millions in household equity during the last decade.

The Cranshaws spent a large portion of their disposable income on their home before they lost it – a likely reason why the investor who bought it was able to sell it within eight weeks for a 90 percent profit.

“We put a new roof on it, new door, put a fence all around it,” John Cranshaw said. “We put our heart and soul into that house.”

Much will need to change before black Sacramento residents like the Cranshaws again buy homes at a quick pace, several experts said.

Pardo, with the Urban Institute, said that in the short term, banks need to loosen lending standards for low- and middle-income buyers. FHA loans, in particular, are designed to help low-income buyers but “those are very hard to access,” she said. “Lenders lost certainty about how they can safely initiate loans.”

In the long term, communities in Sacramento County need more affordable housing, especially single-family homes in low-income areas that aren’t immediately snatched by investors paying cash, several experts said. “There is a big gap right now in supply of homes, period,” Pardo said.

Finally, until income and education gaps are closed between blacks and other ethnic groups, low homeownership rates in the black community will persist, Pardo said. “The big long-term solution is safe and healthy neighborhoods, high-quality education, access to good jobs and health care,” she said.