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The Honolulu Advertiser
Posted on: Thursday, November 13, 2003

THE COLOR OF MONEY
Home ownership one of the fastest ways to build personal wealth

By Michelle Singletary

A new study says African Americans are closing the wealth gap with the rest of U.S. households.

From 1989 to 2001, the ratio of median black household wealth to median U.S. household wealth rose from 9.1 percent to 22.1 percent, according to a report released by the Consumer Federation of America and BET.com.

Put another way, the net wealth of a typical African American household had climbed to $19,010 in 2001 from $5,919 in 1989, an increase of 221 percent, according to an analysis of the most recent Federal Reserve Survey of Consumer Finances data by Ohio State University professor Catherine Montalto.

By comparison, the net wealth of the typical U.S. household rose to $86,100 in 2001 from $64,788 in 1989, an increase of 32.9 percent.

Clearly, the fact that African Americans are increasing their net worth is a good thing.

But the gap is still disturbing. In 2001, 41.1 percent of black households — compared with just 22.9 percent of all U.S. households — had net wealth of less than $10,000.

There are myriad reasons why blacks still lag in net wealth, says Stephen Brobeck, executive director for the Consumer Federation. But the key factor that keeps that gap so wide is the lower rate of home ownership.

The fact is, if low- to middle-income black families want to completely close the wealth gap they will have to save and buy homes.

Actually, that's true for most families. Forget all the hysteria about the stock market's rise or fall. The financial truth is that U.S. households build more wealth through home ownership than stock ownership.

Low- to middle-income Americans — people earning between $20,000 and $80,000 — saw their personal wealth rise by 23 percent from 1995 to 2001 mainly because of increases in home equity, according to a another report by the Consumer Federation and Providian Financial.

The single most important source of wealth for these families is their homes, Brobeck emphasized.

Although the overall U.S. homeownership rate is at an all-time high of 68 percent, minorities still lag behind. In the third quarter of 2003, 48 percent of blacks owned a home compared with 76 percent of all whites, according to the Census Bureau. The homeownership rate for Hispanic households was 46 percent.

My grandmother always taught me that owning a home was the path to prosperity.

After graduating from college, I went to live with my grandmother so I could save to buy a home. I lived with Big Mama for a year until she got on my nerves. She had this thing about me leaving shoes under my bed. Having grown up on a farm, Big Mama believed that every adult should get up at the crack of dawn — even on her day off.

I decided I needed to be on my own so I rented a one-bedroom apartment.

During that one and only year I rented, Big Mama was on my case so bad about renting that I started looking for property to purchase just so she would stop nagging me.

"You can't get nowhere renting," Big Mama said. It was either move back with her or buy something.

I bought a condominium when I was just 23 years old. I've owned a home ever since and that has been key to my building wealth.

That's not to say renting is always a bad financial move. For many people it makes sense to rent. You're not a financial failure if you rent. It just means you will have to work harder to save or invest to make up for what you might have realized if you owned a home that appreciated.

Fortunately, the Federal Reserve data indicated that growing numbers of African Americans are saving regularly.

Between 1989 and 2001, the proportion of black households that saved rose to 42 percent from 29 percent. The proportion of all American households that save regularly is 41 percent.

But saving is just the first step to wealth-building. Much of the increase in wealth for blacks from 1989 to 2001 was because of a rise in homeownership, which went from 42 percent in 1990 to 48 percent in 2003.

Blacks are saving more, but it's also important that their home ownership rates rise, too.

"The biggest barrier to home ownership other than income is pessimism," Brobeck said. "And this isn't just a problem for minorities. There are a lot of people who just don't believe they can save enough. But they can do it even if they start with $5 a month."

Brobeck is right. You have to believe you can save and then do it, because home is where your wealth is.