As Minnesota nears the end of the foreclosure crisis, another troubling phenomenon is emerging: Its homeownership gap for communities of color is the worst in the nation and continues to rise.
According to an annual report from the Minnesota Homeownership Center, the housing recovery is failing to benefit certain parts of the state and is disproportionately affecting certain ethnic groups and areas.
"This report gives us a clear understanding of how homeownership impacts communities — from safe neighborhoods and engaged citizens, to better educational achievement and health," said Julie Gugin, executive director of the Minnesota Homeownership Center.
During the housing boom of the early 2000s, the disparity between the number of white households and households of color who own their own homes began to narrow, but the housing crash and subsequent foreclosure crisis and credit crunch nearly erased those gains.
Statewide, 77 percent of white households owned their home compared with 39 percent of all households of color, according to a 2012 Minnesota Compass report. That 38 percentage-point gap is the nation's largest and the biggest since 1990. The situation was even worse for certain racial and ethnic groups, with only 23 percent of foreign-born blacks and 26 percent of African-Americans owning homes.
Those disparities are particularly pronounced in communities of color, where home prices are recovering at a much slower rate than many others.
In north Minneapolis, for example, prices have fallen so far that a homeowner who bought in 2006 at the neighborhood's median price would need to see their 2013 home value increase by 85 percent to return to its purchase price. Conversely, in southwest Minneapolis, home prices have risen to pre-crash levels.
"The foreclosure crisis, and the bubble that preceded it, focused attention on the cost of homes, but it's time to turn our attention back to where it belongs, on the benefits homeownership adds to individuals and communities," Gugin said.
The report also describes the growing challenge that the so-called millennial generation faces in becoming homeowners because of the slow start many are having in their careers and their high student loan debt. Such trends come amid growing evidence that the worst of the foreclosure crisis is over.
On Tuesday, CoreLogic said the foreclosure rate in the Twin Cities had fallen to 0.55 percent for March, a decline of six-tenths of 1 percentage point compared with March 2013, when the rate was 1.15 percent. That compares with a national foreclosure rate of 1.86 percent.
Mortgage delinquency rates, which are often an indication of future foreclosure rates, were also down. Across the metro, 2.49 percent of mortgage loans were 90 days or more delinquent, compared with 3.53 percent for the same time last year.
Warren Hanson, president and CEO of the Greater Minnesota Housing Fund, said Minnesota's situation is not unique, nor is it new. Minority home buyers across the country have been marginalized for decades starting with a practice known as redlining, which made it difficult for minorities to get a mortgage in communities deemed to be a financial risk.
"It's historically pervasive," he said. "That momentum has a way of continuing unconsciously, and it takes extra effort to remedy."
He said the homeownership gap is particularly wide in outstate Minnesota, and especially pronounced in the more urban areas of Duluth, St. Cloud, Rochester and Moorhead.
"The dynamics are similar," he said.
He said restrictive mortgage lending guidelines and a flood of deep-pocketed investors have made it difficult for minorities to compete for housing in the neighborhoods most battered by the housing crash.
Statewide, there were nearly 12,000 foreclosures, about the same as in 2006, but less than half of the more than 26,000 at the peak of the crisis in 2008. Most of those foreclosures have been in urban areas where predatory lending practices and concentrations of poverty have made homeowners vulnerable to losing their homes.
"If we are going to have any effect on reduction of poverty for future generations, we have to help remedy things like wealth creation in the form of homeownership, and this is one time when extra efforts are needed to correct a wrong, to improve equity in every sense of the word," Hanson said. "I think this is a call to action for lenders and others who can improve access to homeownership."