By Tali Wee of Zillow
Housing in the Chicago metro is expensive, whether renting or buying. Zillow released new data revealing that your race can determine the likelihood of acquiring a home loan and can help make inferences on the future performance of home values.
Zillow studied housing and race closely by assigning a single race to each ZIP code, based on the majority ethnic group in each region. According to Zillow’s analysis, the Chicago-Naperville-Elgin region includes black, Hispanic and white communities. You’ll notice on the ethnic pluralities map below that the Glencoe region is predominantly white, while Niles Township (located just north of Chicago) includes also black and Hispanic residents.
Home Values During the Housing Crisis
During the housing bubble, black and Hispanic communities experienced the fastest housing appreciation, and when the bubble burst, those home values also fell the quickest. Home values in predominantly Hispanic communities fell the farthest during the housing recession compared to black, white and Asian areas. Hispanic communities in the Chicago-Naperville-Elgin region fell 44 percent from peak home prices in 2007 to the bottom of the housing market in 2012. Home values in local black communities fell 38.7 percent while white areas fell 29.7 percent. The housing crisis affected homeowners of all races, but minority communities suffered the greatest home depreciation.
Home Value Recovery Path After the Housing Crisis
Recovery, too, occurred across all three ethnic groups nationwide. In the U.S., Hispanics have the furthest still to recover since the bottom of the market in 2012. Home values in Hispanic communities are still 24.2 percent below their peak prices in 2007; blacks are 17.9 percent below peaks. In the Chicago-Naperville-Elgin region however, Hispanic and black communities are both 31.7 percent below peak home values, while whites have only 18.2 percent to regain their top-of-the-market values.
Minority Home Values Disparity Largely Due to Household Income
So, why the vast disparity between homes values? One economic difference between black, Hispanic and white households is income. Whites have the highest household income, enabling them to rely on deeper savings when the recession hit and Americans of all races lost their jobs. Homeowners in lower-income areas did not have the savings to continue paying their mortgages after job loss, leading to foreclosures. As homes foreclosed, neighborhood home values were driven down.
Home Value Predictions for 2015
Within the next year, Zillow predicts all home values will continue recovering, regardless of ethnic identity. However, black communities in the Chicago-Naperville-Elgin region are forecasted to experience the least appreciation in 2015 compared to Hispanic and white areas. Forecasts call for home value appreciation of 1.5 percent in the region’s black communities, 5.4 percent in white areas and 7.1 percent appreciation in Hispanic communities.
If you’re considering buying a home in Glencoe, a predominantly white community, you’ll notice the median home value ($971,000) is significantly higher than the median values in the greater Chicago metro ($187,500) and the U.S. ($178,500). Niles Township, the more ethnically diverse community, as well as the neighborhoods of Lincolnwood ($330,100), Morton Grove ($259,900), Niles ($256,100) and Skokie ($244,900), all have home values much closer to the U.S. and Chicago metro medians.
Home values appear consistent through the next year; Zillow projects U.S. homes values to appreciate by 1.9 percent in 2015. Glencoe should experience a lesser boost of 0.5 percent, since prices recovered quickly in the predominantly white community. Niles Township neighborhoods are forecasted to experience varied appreciation in the next year, but less than the national rate: Lincolnwood will be up 1.8 percent, Morton Grove up 0.1 percent, and Skokie is predicted to depreciate just slightly by 0.1 percent. The only region in Niles Township expected to experience better than national appreciation is Niles at 2.6 percent. These numbers may be discouraging for current owners, but suggest it’s a smart time for buyers to purchase while prices are still below their peaks and not anticipated to drop again.
Financially Smart Buying in Chicago Metro Is Shorter-Term Than Commonly Assumed
Although it goes against the common belief that homebuyers must be long-term residents, the research indicates Chicago metro locals are financially better off buying than renting if they plan to reside in the same home for at least 2.3 years. The breakeven horizon calculates the point when buying becomes more cost effective than renting. Instead of paying Chicago metro’s steep median rent price of $1,609, buyers begin building home equity once they’ve owned a home for 2.3 years. Glencoe and Niles Township are located within the Chicago metro breakeven horizon region. Plus, rent prices in these areas are all more expensive than the median monthly rent for the greater metro: Glencoe ($3,055), Lincolnwood ($1,950), Morton Grove ($1,950), Niles ($1,774) and Skokie ($1,725).
Home Loan Denial Rates Highest for Blacks
If you plan to settle in the metro for more than 2.3 years and you’ve saved a down payment to purchase a home, your race could determine whether you’re granted a loan or not. The federal mortgage denial data indicates that conventional loans have a U.S. denial rate of 12.4 percent; in the Chicago metro it’s 12.6 percent. Blacks in the region are disproportionally denied conventional loans at a rate of 32.1 percent. Meanwhile, Hispanics have a denial rate of 24.9 percent. Whites are denied conventional loans at a low rate of just 10.1 percent. Minorities have better chances applying for government-backed FHA loans than conventional options.
Nearly half of U.S. blacks (41.9 percent) and Hispanics (45.2 percent) are homeowners, but it’s clear that access to credit is unequal. These statistics are also due to income differentiation, in addition to larger economic barriers to success that minorities face.
If you’re in the market to buy a home in the greater Chicago metro, including Glencoe or Niles Township, this data can help you determine where you should buy for the best return on your investment. Shop for homes in the areas that most appeal to you, and explore options in the communities forecasted to appreciate the most in the next year. When you’re ready for a loan, apply for FHA loans for the best chance of approval. Credit score management also helps with loan approval.
If renting is the best option for now, shop for apartments that suit your budget. Continue paying rent in a timely fashion to maintain good credit scores for future home purchases.
If you think you are experiencing discrimination in buying or renting, have questions about tenant rights, or need foreclosure prevention information, contact Open Communities. Open Communities is the leading voice for housing, economic and social justice in north suburban Chicago, working to promote inclusive communities that are welcoming to all.