Minority Wealth Gap Suggests a Cautious Future

New research shows the wealth gap between whites and minority groups has risen to record highs. According to a Pew Research Center analysis of new U.S. Census data, the deterioration of housing prices and the recession took a far greater toll on the net worth of African Americans and Hispanics than whites.

From 2005 to 2009, the median net worth of Hispanic households dropped by 66 percent while net worth fell 53 percent among black households, said the report, Wealth Gaps Rise to Record Highs Between Whites, Blacks and Hispanics. In contrast, the median net worth of white households dropped by only 16 percent.

Because of these declines, the typical black household had just $5,677 in assets (minus debts) in 2009, and Hispanic households had $6,325 in assets, compared to white households, which had $113,149.

The wealth gap is about twice the shortfall that existed before the recession and the biggest disparity since 1984, when the Census Bureau began publishing wealth estimates by race and ethnicity.

The housing downturn, in conjunction with the 2007–2009 recession, has been much harder on minorities because a larger share of their net worth came from home equity. The geographic effect on the loss of home equity was also apparent: A disproportionate share of Hispanics live in states hardest hit by housing woes, including California, Florida, Nevada, and Arizona, according to the report.

The report also found that white households have been relatively protected from wealth erosion because they are more likely to have diversified sources of wealth, including stocks, bonds, and other investments.

Household wealth is defined in the report as the sum of assets, including houses, cars, bank accounts, stocks and mutual funds, and retirement accounts minus debt, which includes mortgages, auto loans, and credit card balances.

What the Pew findings suggest is that smart home buying decisions encompass careful financial planning considerations. For example, buyers shouldn’t have to deplete liquid assets to come up with the necessary down payment on a home; that’s one reason the NATIONAL ASSOCIATION OF REALTORS® is fighting to prevent regulators from setting guidelines that would lead to high down-payment requirements (see “What We’re Fighting For”). And although a recent NAR survey shows most owners and renters today still believe strongly in the American dream of home ownership, the Pew analysis points to the need for buyers to diversify their assets and take all the costs of ownership into account so that they can continue to save for the future—a future that still harbors much economic uncertainty.