The Racial Wealth Divide And Black Homeownership: New Data Show Small Gains, Deep Fragility

KEY TAKEAWAYS:

• Black households had the largest percentage increase of any group in median net worth from 2019 to 2022, up 60% to $44,900.
• Black wealth gains did not, however, narrow the racial wealth divide to any meaningful degree: A three percentage-point contraction in the Black-White wealth divide still leaves a chasm of nearly 85% between the groups.
• Over the last decade, Black wealth has become more dependent on home equity which accounts for two-thirds of net worth growth from 2013 to 2022.

The Historical Roots of the Racial Wealth Gap

Throughout the history of the United States, including before and after the passage of civil rights legislation in the 1960s, there has been persistent inequality in wealth and homeownership between Black and White families. The disparity in wealth between Black and White communities is not merely alarming; it’s unacceptable. Black wealth currently constitutes barely 15% of White wealth. Addressing this egregious inequity necessitates a focus on increasing Black homeownership, which remains disconcertingly low. It is deeply troubling that the majority of gains in Black homeownership occurred before 1968, during an era when segregation was legally sanctioned. This fact underscores the structural barriers perpetuating this intolerable wealth divide. 

For most families, their home is the primary way they store and build wealth. The Black-White homeownership gap is therefore the primary driver of the Black-White racial wealth divide. NCRC has called for policymakers to set a target Black homeownership rate of 60% within the next 20 years. 

While homeownership is the biggest key to wealth accumulation, other factors help contextualize wealth and homeownership disparities. Inheritances, intergenerational transfers and support from family and friends also play major roles in persistent racial inequality because many Black families lack the opportunity to give or receive familial financial support. 

These in-kind familial transfers are frequently used as a down payment on a home purchase. The difference in financial support that Black and White families can provide their children further exacerbates the homeownership gap. Black families’ inability to establish intergenerational wealth impedes homeownership opportunities, compounding the racial wealth gap. And when an unexpected emergency expense arises, this same difference in support network capacities may mean that a Black household that’s found some financial traction can have their wealth-building progress abruptly undone in ways a similarly situated White family might not.

A variety of data sources exist to add specificity to this picture. The most comprehensive dataset on the balance sheets of American families is the Federal Reserve’s Survey of Consumer Finances (SCF). The SCF collects information on the types of assets and liabilities held by families. 

The 2022 edition of the SCF was recently released and forms the basis of the following analysis. What do the new data show about the state of wealth accumulation for families, the racial wealth divide, and how it has changed over the pandemic? And what further research questions do the new numbers suggest?

Overview of Racial Wealth Divide and the Composition of HH Wealth

Using average wealth, the disparity in both the scale and composition of Black and White wealth is staggering. As huge as the home equity gap remains, differences in other forms of wealth are even more pronounced.

Racial Wealth Gap Over Time

Between 2019 and 2022, the median net worth of Americans saw an increase of 37%, jumping from $141,145 to $192,900. This was the largest three-year increase since the Survey of Consumer Finances (SCF) began in 1989. During the same period, the average net worth for all households rose by 23%, reaching $1,063,700.

Median Net Worth indicates the middle point of net worth in America; half of the households have more, and half have less. The substantial rise in median net worth suggests that the financial situation of the typical American household has improved significantly.

Average Net Worth, on the other hand, calculates the total net worth of all households divided by the number of households. A higher average net worth, especially when it significantly exceeds the median, often indicates that wealth at the top end (i.e., among the wealthiest households) is pulling the average up. This can mask the financial reality of the majority, as a few extremely wealthy individuals or families can skew the average upwards.

In this case, both median and average wealth increased substantially – driven largely by the increase in home equity. For households that rent, that paints a far grimmer picture.

These significant gains in the overall wealth of US households also reduced the racial wealth gap – just not nearly enough to constitute a victory. Black household wealth increased from 12.7% to only 15.5% of median White household wealth between 2019 and 2022.

Black households made substantial gains in net worth between 2019 and 2022. Over this period, median Black net worth increased by 60% to $44,900, the largest increase of any racial group. This huge jump in wealth can be attributed mainly to housing which accounted for 43.8% of total Black wealth. Home equity now makes up the largest share of Black wealth since the start of the 20th century.

The homeownership rate among Black Americans was approximately 44% in 2021 according to the American Community Survey. This means that the financial advantages of rising property values benefited just a fraction of Black families—those who own homes. In fact, between 2013 and 2022, more than 90% of the wealth gains for Black Americans came from homeownership. This indicates a growing reliance on owning a home as a key method for Black households to accumulate wealth.

The persistent homeownership gap significantly amplifies wealth growth among White families compared to Black families. This gap in homeownership rates between White and Black families has remained strikingly stable since 1900. The smallest difference was observed in 1980, at just 22.5%. Unfortunately, this gap has widened rather than narrowed over time, reaching 29.6% in 2020—even larger than when the Census first started recording these figures in 1900. This widening gap underscores the urgent need to address systemic inequalities in homeownership to foster equitable wealth growth.

If home prices were more attainable for renter households, that might not be such a worry. But the lack of housing affordability is making this dependency on homeownership a liability for Black households. Elevated home prices and mortgage rates are strangling the American dream of Black renters hoping to move into homeownership – just as rent costs skyrocket nationwide and half of all renters are cost-burdened.

There are substantial differences in the data regarding the composition of net worth by race. Close to half of Black net worth came from home equity alone, compared to less than 20% for White households. Vehicles made up close to 4 times as much of a Black household’s net worth as their White counterparts. The inverse holds for stock ownership, which made up 8% of White wealth but just 2% of Black wealth. Overall, Black households’ wealth is less diversified and tends to rely more on non-investment property and non-financial assets.

In addition to these differences in net worth composition, the drivers of net worth growth have also differed along racial lines over the last decade. For White households, home equity and business assets are the two largest contributors to net worth gains between 2013 and 2022, accounting for 21% and 27% respectively. For Black households, however, home equity accounted for over 60% of wealth gains, followed by retirement accounts at 18% over the same period. These differences in the composition of both overall wealth and wealth gains show that White households have a variety of sources of wealth, including in real estate property (the largest component of ‘other wealth’) while Black households rely heavily on homes, vehicles and retirement. White households often have broader access to financial resources, education and networks that facilitate investments in higher-return assets like stocks and business ventures, contributing to more substantial wealth growth. Additionally, systemic barriers and historical inequalities, such as disparities in credit access and discriminatory housing practices, have hindered Black households' ability to accumulate and diversify their wealth comparably.

The Role of Entrepreneurship

One noteworthy observation from the new SCF numbers was the large jump in the percentage of Black households reporting business assets, from under 5% in 2019 to over 11%. This surge in business formation among Blacks mirrors trends seen throughout the economy, as more people filed business license applications than before the pandemic.

This doubling in the share of Black people who owned a business between 2019 and 2022 was, however, accompanied by an almost 50% decline in average business value. This fall in business value was observed for all racial groups – though it was significantly less pronounced for White households. If the number of businesses doubled but their average value halved, that would signal a net gain of approximately zero dollars in the total revenues of Black-owned businesses. But this worrisome news from the SCF isn't necessarily represented in other surveys. 

According to the Census Bureau’s 2022 Annual Business Survey, there were 161,031 Black-owned businesses, a 29% increase from 2017. Over the same period, the percentage of Black businesses with no employees – other than the business owner themselves – went from 12% to 16% of all Black-owned firms. The average revenue per Black firm increased by 10%. Finally, the number of self-employed workers overall in the economy increased by only 3% from 2019 to 2022. 

The contradiction between SCF data and survey data on Black business formation means it is possible that the large increase in Black households reporting business assets was due to an increase in micro-business and informal self-employment among Black Americans – who, as a group, still struggle to access the small business capital vital to pursuing grander business ideas, in ways that new data set to be captured under Section 1071 rules may help to address.

Conclusion

As the African American community achieves record levels of wealth and record lows of unemployment, the momentum is there to decrease asset poverty for African Americans and help reduce the racial wealth divide. To bring African Americans to broad economic security – the landscape envisioned in NCRC’s Just Economy Pledge, where most Black people are homeowners and their median wealth is near the national median – will require meaningful policy change. 

There are promising examples of such change in bold, experimental local policies being tried across the country, including baby bonds that would have a disproportionately positive impact on African American economic security, universal basic income pilots, and community land trust initiatives. There is also evidence of increased discussion of reparations, which are specific to repairing the harms from racialized slavery and other now-illegal forms of exploitation and can lay the groundwork for more general policies to address homeownership and affordable housing. But neither city- and state-level policy experiments nor louder talk about reparations will suffice. Federal policy is required to address this longstanding national issue – and in the severe partisan gridlock that’s defined federal policymaking in recent years, it is difficult to hope for bold congressional action to address African American racial economic inequality.  

Joseph Dean is NCRC’s Racial Economic Junior Research Specialist.