Locked out of wealth: The racial divide in home equity

As a Bankrate senior writer, I spend a lot of time diving into all things home equity. And lately, there’s been a lot to focus on.

In the fourth quarter of 2024, homeowner equity averaged an eye-popping $35 trillion, courtesy of a 60 percent increase in home values since 2019, according to Harvard’s Joint Center for Housing Studies (JCHS). That adds up to approximately $400,000 per homeowner, among the highest equity levels we’ve ever seen.

On the surface, it sounds like a win. But not everyone is experiencing the historic growth in home equity – in particular, homeowners of color. “Only a small portion of Black adults have any home equity and, among those who do, the equity is generally lower because their homes are valued less,” says Jason Richardson, senior director of research at the National Community Reinvestment Coalition (NCRC).

What’s more, Black homeowners also have a harder time borrowing against their equity stake, with loan denials double those of white homeowners, Federal Reserve Bank research has found.

Why is there a racial divide in accumulating and accessing home equity, and why does it persist?

Inequality in accumulating home equity

Home equity – your home’s worth, minus its outstanding mortgage – is more than just a number on paper. It can be the difference between affording college tuition, making vital renovations, starting a business, or weathering a crisis. But to build equity, you first need to own a home. While 2023 (the latest year data is available) was a banner year for the growth in Hispanic and Black homeownership, a persistent and significant divide still exists between Black and white households and their equity stakes.“There’s about a 25-percentage-point gap that has remained unchanged for roughly 120 years,” Richardson says.

The disparity starts from day one of homeownership. Larger down payments – the amount paid out-of-pocket for a purchase – boost a buyer’s equity stake. In 2023, when the average white homebuyer bought a home worth over $450,000, they gained over $130,000 in equity at closing (reflecting the amount of cash they put up), according to NCRC research. Compare that to about $86,000 for Hispanics and only $69,000 for Blacks. Some Black and Hispanic families struggle to manage even the minimum down payment of 3-3.5 percent.

Today’s record-high home prices have created “a substantial growth in the need to access assistance for first-time homebuyers,” says Alexander Hermann, senior research associate at JCHS. However, some first-timers have resources others don’t. “More often than not, white households have access to ‘the bank of mom and dad’ in the way that Black and Hispanic households don’t necessarily have.”

Persistent income and wealth gaps

Before the pandemic, Black and Hispanic households made meaningful strides when it came to building wealth, recording faster growth than white households. But “despite those faster gains, Black and Hispanic families started with less,” notes Nadia Evangelou, senior economist and director of real estate research at the National Association of Realtors. “It’s like two runners in a race. Even if one is running faster, they can still fall further behind if they start further back.”

And, in the last few years, they have been. Between 2019 and 2022, while wage and salary income grew significantly for white families, it stayed almost flat for Black and Hispanic ones. By 2022, the typical white household had approximately $285,000 in overall wealth, more than four times that of Hispanic households ($61,600) and more than six times that of Black households ($44,900).

This disparity is especially troubling given that it now takes a six-figure salary — nearly $117,000 — to afford a typical single-family home today, 50 percent higher than only five years ago, Bankrate’s 2025 Housing Affordability Study has found. Not only are wages stagnant and home prices elevated, but persistently high mortgage rates have priced many Black and Hispanic families out of the market: “It’s clear that few of them can afford to buy a median-priced home,” says Evangelou. And if homeownership is out of reach, so, of course, is the ability to build home equity.

Discrimination and loan denials

Economic factors aren’t the only barriers blocking people of color from building and benefitting from homeownership – bias and prejudice play a part too. Although practices like redlining are now illegal, their impact persists in more subtle, yet still damaging, ways.

“We’ve done numerous paired tests, where two potential homebuyers are sent to a lender to ask for information,” says Richardson. “It’s very common for the white applicant to be invited into the loan officer’s office and given all the information they want. The same lending office will refer a Black or Hispanic borrower to their website. This is an example of the lender discouraging the applicant from even putting in an application.”

When applicants of color do apply, they’re more likely to be denied, even when they have similar credit scores, income, and are applying for the same type of loan. According to research from the Federal Reserve Bank of Minneapolis, the reasons lenders give for denials, like employment history or credit history, don’t fully account for the racial gap.

“Mortgage denials are just one part of the application process,” says Richardson. “Loans are either approved, denied, or become what’s called ‘fallout,’ which means the loan doesn’t close for some other reason.”

Even if they’ve built a good stake, accessing their hard-earned home equity isn’t any easier for some homeowners. Between 2018 and 2021, Black applicants were denied home equity line of credit (HELOC) at a rate of 62 percent, almost double that of white homeowners (32 percent), according to a study by the Federal Reserve Bank of Philadelphia. Hispanic homeowners also experienced significantly higher denial rates. In the four-year period, Black and Hispanic homeowners missed out on the ability to cash out a total of more than $4 billion in locked-up equity from HELOCs, home equity loans and cash-out refinances.

“Home equity lending is dominated by banks and credit unions, which tend to be much more conservative lenders anyway,” says Richardson. “It’s not unusual to see home equity loan denial rates over 50 percent.”

Inaccurate home appraisals

Accurately valuing your home is a key part of determining how much equity you possess – and how much you can borrow. Unfortunately, there’s a racial gap in home appraisals. Recent research from Washington University’s Weidenbaum Center on the Economy, Government, and Public Policy has shown that homes in white neighborhoods are appraised at double the value of homes in communities of color, even when the homes are similar and have comparable amenities.

“When homes are systematically undervalued, families have less equity to build wealth, pass to future generations, or leverage for economic opportunities,” says Richardson. “This creates a cycle where historical discrimination leads to current disparities, which then limit future wealth-building opportunities through homeownership.”

Conversely, overvaluations of homes are also a real occurrence in majority-Black neighborhoods, according to a report from the Brookings Institution – which can fuel unrealistic jumps in property prices and lead to a crash later on, potentially putting homeowners into negative equity. All told, “10 percent appraisals in majority-Black neighborhoods are valued on the wrong side of the contract price, compared to what would be expected in the absence of racial bias,” the Brookings study found.

It’s like two runners in a race. Even if one is running faster, they can still fall further behind if they start further back.

— Nadia Evangelou Senior Economist and Director of Real Estate Research, National Association of REALTORS

The ramifications of the racial home equity divide

Here’s what makes all these barriers an urgent problem: Home equity is the main source of wealth for a historically unprecedented percentage of Black and Hispanic families.

In 1992, only about one-third of these groups’ wealth — 38 percent of Black wealth, 33 percent of Hispanic wealth — was concentrated in homeownership. Fast-forward to 2022: Home equity now comprises close to half of the wealth of Hispanic and Black households (45 percent and 44 percent, respectively). Not only is the value of other assets, like retirement accounts or business assets, much lower for Blacks and Hispanics than for whites, but they also have a smaller share of them — or don’t have them at all.

In contrast, home equity comprised about 19% of white households’ net worth in 2022, roughly the same percentage as in 2013, according to the NCRC.

Since diversification is important in mitigating risk, having all your nest eggs in one basket could be dangerous. “Essentially, you have a scenario where many people [of color] are home-rich and asset-poor,” says Dean. “It means that the next recession or housing crash could be particularly devastating for Black households in terms of wealth, given the dependency on home equity over the last decade.”

That’s why the ability to tap equity with a home equity loan or a HELOC is crucial, and becomes more so for Black homeowners as they age. “Without adequate liquid assets or access to equity, older Black homeowners may struggle to cover a lot of expenses,” says Linna Zhu, senior research associate at the Urban Institute. “Poor condition properties may need a major renovation at some point. The properties may lack accessibility features, especially for disabled households. Being unable to tap home equity reduces their ability to maintain housing stability and further worsens the racial wealth gap later in life.”

How do we address the racial divide in home equity?

Home equity remains one of the most powerful tools for building financial security, but it only works if everyone has a fair shot. And right now, too many Blacks and Hispanics aren’t getting one.

Admittedly, “the current home-buying market isn’t doing anyone any favors at all,” as Hermann puts it. But “unless things improve, there’s very little reason to think that you’re going to see meaningful progress, either in increased access to homeownership for households of color or continued closing in these substantial and persistent wealth gaps.”

So how do we make them improve? If we want home equity to be a true path to financial stability for everyone, we have to address barriers like income inequality, appraisal biases and loan denials that prevent families of color from fully participating in homeownership. That can be done by expanding access to higher-paying jobs, increasing support for down payment assistance and strengthening fair lending enforcement. Boosting financial literacy and education is also crucial as some homeowners may have misconceptions about home equity, not fully understand the equity they’ve built or how they can access it.

A collective $35 trillion in homeowner equity is an amazing amount. But it doesn’t mean much if it remains a number on paper for entire communities – or if they’re being left out of the equation entirely.

Questions, comments or thoughts about this article? Email me your feedback at lbell@redventures.com.