Bubble Trouble: The Wealth Divide Between Whites and Blacks Hits 25-Year High

Bubble Trouble: The Wealth Divide Between Whites and Blacks Hits 25-Year High

The good old American dream: A melting pot of ethnicities, a house for every family … and an ever-widening wealth gap?

According to a recent study by the Pew Research Center, the wealth divide among races is the largest it’s been in 25 years. White families now make a median income 20 times greater than the average black family and 18 times greater than the average Hispanic family.

To account for this, we can point fingers at a number of economic culprits, from unemployment and stock market turmoil to reduced earning power.  For example, between 2005 and 2009, though Americans across the board saw dips in median income, minorities were hit the hardest. While whites experienced a 16% decrease in take-home pay, Hispanics lost 66% of their income and blacks lost 53%.

Ultimately, there is one overarching factor contributing to this widening divide: real estate.

Bubble Trouble

Above all, researchers attribute the growing racial income disparities to turbulence in the housing market. Before the real estate bubble burst in 2006, many minorities took out loans to float their mortgages. Since then, housing prices have plummeted, causing those families to lose equity on their homes. According to Rakesh Kochhar, a member of the Pew research team: “Hispanics, in particular, are concentrated in areas where house prices first rose steeply and then crashed harder, like Arizona, California, Florida and Nevada."

White families have also felt the sting of the housing crisis, but their portfolios have been cushioned by other financial assets like stocks and bonds. In the past few years, the stock market has slowly recovered while the housing market remains weak. As a result, minority families, who are less likely to have diversified investments, continue to struggle even as whites bounce back.

What We Can Learn

Buying a home can be a great investment, but only if you’re financially prepared. Especially during periods of economic downturn, owing money on a home can add up to a liability rather than a boon.  Whether you’re getting ready to buy a house or are on your way to paying off your mortgage, click here for information on taking out a second mortgage or refinancing the one you have. It’s being secure in your ability to afford your purchase, over the long-term, that will really make a house a home sweet home.

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