Davenport Institute

Research Reports

---

Rewarding Ambition: Latinos, Housing and the Future of California

Joel Kotkin, Thomas Tseng, & Erika Ozuna

September 2002

CALIFORNIA'S NEW RISING MAJORITY

The rise of the Latino population represents the most dramatic demographic shift in America in the late twentieth century. Census 2000 revealed astonishing Latino population growth that exceeded even the most buoyant projections; the population became the largest ethnic group in the nation — growing 58 percent over the previous decade. Today, Latinos represent 12.5 percent of the overall U.S. population at 35.3 million.¹⁰

More than any other ethnic group, Latinos are poised to fundamentally shape and redefine the country's dynamic, shifting social landscape. Far from a homogeneous population, the explosive growth of Latinos in the country shows few signs of slowing down in the immediate future — as the Latino population boom is projected to climb to 52.7 million by 2020.¹¹

Increasingly, less of this growth will be driven by immigration — as high birth rates subsume a greater proportion of overall population.¹² The fastest growing segment of the Latino population is among the swift-rising third generation. By 2025, it is estimated the U.S. will be home to the second largest Latino population in the world.

California's Rising Latino Population

California is home to the largest Latino population in the country and will certainly continue to be one of the primary hubs for the Latino population boom. In just the past twenty years, the proportion of California's Latino population has tripled — comprising just 10 percent of the state's population in 1980, Latinos grew to 32 percent in 2000.¹³

The "Latinization" of the Golden State — which currently comprises approximately 12 million Latino residents — will continue to escalate rapidly in subsequent decades and may very well constitute the majority ethnic group in California before mid-century.



Moreover, Latinos have made tremendous strides into the mainstream U.S. economy — bringing new dynamism to the American consumer market overall and comprising a fundamental component of California's overall workforce. This has resulted in exploding purchasing power.



Between 1990 and 2000, Latino purchasing power in California nearly doubled from $76 billion to $147 billion. Currently, the spending power of Latinos in the state is estimated at approximately $171 billion and continues to escalate at a breathtaking clip. By 2007, it is projected to climb to almost $260 billion.¹⁴

This purchasing power is rapidly climbing at greater levels than even Latino population growth in the state. While this growing economic clout is due partly to an ascending Latino middle class,¹⁵ the relative youth of the Latino population is one critical factor in this phenomenon. While the average age among all Californians is 38, the average age for the state's Latino population is 25. Thus, many Latinos are just entering the workforce and are entering their prime spending years just as many Anglo Californians are preparing for retirement and retrenchment. A considerable proportion of the Latino population has yet to even make its full impact felt in the labor force.



Two-thirds of the Latino population in California is under the age of 35. Due to their relative youth, their rate of household formation, and entrance into the workforce, this segment of the population will constitute the greatest level of housing demand over the next several decades; and many of them — in the 30-35 age range — are just now entering the peak home-buying periods of their life stage. Between 2000 and 2010, for example, Latinos will account for roughly 40 percent of Californians entering middle age, compared to only 34 percent for Anglos.¹⁶

Achieving the California Dream

One sign of the enormous drive among Latinos for homeownership can be seen in the expanding numbers who, despite rising prices, have managed to join the ranks of California homeowners. Land ownership is, if anything, a more coveted value throughout Latin America than in the United States. The Mexican Revolution, for example, was largely fought over the issue of land ownership; in Mexico, prior to the 1920s, the vast majority of the good land was in the hands of a few owners. Land reform, with the distribution of property to peasants, was a critical part of revolutionary plans put into effect, particularly under the presidency of Lazaro Cardenas.¹⁷

Recent conflicts in Chiapas and around the newly proposed Mexico City airport suggest that land security is a major issue in the cultures from which most Latino immigrants migrate. Lack of formal property ownership, as one U.S. AID official suggests, is one of the things that prevents giving the majority of people in these countries "a sense of purpose, a stake in society and a seat in the community council."¹⁸ Nor is the land problem in Mexico today simply a rural one. With its own rising population, the country is experiencing its own major housing shortage. Mexico, according to one recent study, needs to build roughly a half million affordable new living units a year to accommodate its own soaring domestic growth.¹⁹



A similar orientation towards home or land ownership can be seen in the desire of Latinos relocated in the United States and California to place their primary investment into purchasing a home. Even with their lower incomes, the gap between Latinos and others in terms of the value of their homes is much lower than other barometers of wealth accumulation, such as stocks, bonds, or business equity.²⁰ Home equity represents a median of 71 percent of Latino homeowners' net worth compared to 40 percent and 57 percent for their Anglo and African- American counterparts, respectively. In contrast, only 4 percent of Latino households owned publicly traded stock compared to 14 percent of overall U.S. households.²¹



Nationwide, Latino homeownership between 1998 and 2000 rose from 4 to 4.5 million, accounting for 17.5 percent of the overall rise in U.S. homeownership levels during that period.²² California was a large part of this movement.

The percentage of homes purchased by Latinos has climbed in recent years — as more than one in five homes sold in California today are being acquired by Latino buyers.



The number of homes purchased by Latino home buyers has climbed from 18.7 percent in 1999 to 22.4 percent in 2001.²³ Preliminary figures suggest that this upward climb may be slowing down. The current percent of homes acquired by Latinos is 21.5 percent, according to the most recent figures during the first half of 2002.

While home-buying records for the remaining calendar year will provide a more conclusive picture, the slightly falling percentage of Latino home buyers in 2002 may be indicative of California's growing housing crisis (to be discussed in the next section).

More than one-half of all homes purchased by Latinos between January 1999 and June 2002 were in the five-county Southern California region, predominantly in Los Angeles County.

Overall, 57 percent of California's Latino home buyers purchased homes in the five-county Southland area — encompassing Los Angeles, Orange, San Bernardino, Riverside, and Ventura Counties. Across the entire state, more than 300,000 housing units were purchased by Latino home buyers during this three- and a half-year period.

By far, Los Angeles County garnered the highest level of Latino home buyers than any other part of the state. Twenty-eight percent of all homes acquired by Latino home buyers in California were in Los Angeles County.



In Los Angeles County alone, more than 85,000 housing units were sold to Latino home buyers — three times greater than the next closest rival, San Bernardino. In fact, there were more Latino home purchases in Los Angeles County than in San Bernardino, Orange, and Riverside Counties combined during this period. As the second highest county of Latino home purchases at 28,100 homes, San Bernardino is followed by Riverside (24,700), Orange County (23,500), and San Diego (23,300).

Yet this progress is not being experienced across the board among Latinos. A growing divide can be observed in the data between the largely wellacculturated segments of the population (which tend to be U.S.-born and possess higher educational levels) and the considerable immigrant community, which has been the primary driver of population growth over the last several decades. Perhaps the most critical issue for housing in California lies in preserving the opportunity and hope for homeownership among this large and rapidly expanding group.

In this sense, current statistics for Latinos are really a story of two populations. While the U.S.-born Latino population has demonstrated considerable progress across all social indicators of well-being — including rising income levels and greater levels of educational attainment — it has been the vast immigrant sector, primarily from Mexico and Central America, that has faced the greatest economic pressures and housing challenges.

Due to their swelling numbers during peaks of immigration over the past thirty years, overall homeownership levels among Latinos actually declined from 49 percent to 41 percent between 1970 and 2000.²⁴ Much of this coincided with vast immigration growth from Latin America.²⁵



Certain specific demographic features of California's Latino population have been well documented — including the propensity toward larger households, the centrality of families, and larger numbers of young children per household. Yet, to date, overall data on Latino housing patterns have been scarce.

Thus, in May/June 2002, the sponsors of this study commissioned a statewide poll. A total of 504 telephone surveys were conducted among California's Latino population in order to document the overall housing attitudes, characteristics, and challenges confronting the population. Telephone interviews, conducted in both English and Spanish, were administered by the research firm Cultural Access Group, Inc. In general, the survey captured a representative cross-section of Latino homeowners and renters across the state. (For more information on the survey methodology, refer to the Appendix).

Overall, a little over one-quarter of all respondents — 27 percent — were born in the U.S. Among the rest, 57 percent were born in Mexico, 10 percent were born in Central America, and 6 percent were born in other parts of Latin America.²⁶ Strong differences are apparent between the U.S.-born and foreign-born populations.



Nearly two-thirds of U.S.-born Latinos are homeowners whereas less than one-third of Latinos born outside the U.S. own their own homes.

A wide disparity exists between U.S.-born Latinos and foreign-born Latinos in the area of homeownership. U.S.-born Latinos possess substantially higher rates of homeownership than those born outside the country. While nearly two-thirds of the U.S.-born population are homeowners, less than a third of the foreign-born population own their own homes. The foreign-born Latino population also falls behind their U.S.-born counterparts in income and educational levels and tends to have larger households with a higher number of children per household. 13



Profile of Latino Homeowners

Latino homeowners tend to be more acculturated than non-homeowners — 43 percent of homebuyers are U.S.-born compared to only 16 percent of renters. Likewise, homeowners have been in the U.S. longer — average 32 years versus 17 years — and are far more likely to be U.S. citizens (57 percent versus 26 percent).

A total of 204 surveys were conducted among current Latino homeowners across the state. In general, existing Latino homeowners are older than Latino renters (average age is 44 years compared to 36 years), favor English slightly more than Spanish (60 percent to 40 percent selected to conduct the survey in English), and live primarily in single-family, detached homes (90 percent).

California's Latino homeowners are also relatively more assimilated into U.S. society than their renter counterparts — more than 40 percent were born in the U.S. compared to only 16 percent among renters. Of those born outside the U.S., most of them — 70 percent — have lived in the U.S. for 15 years or more.



Recent Homeowners

Many Latino homeowners are recent owners — 44 percent have owned their homes for fewer than five years. In addition, more than 70 percent of their homes are a result of a first-time home purchase.

Many Latino owners are fairly recent homeowners — 44 percent of respondents indicated they have owned their homes for fewer than five years, and more than 70 percent revealed that their current residence is their first home purchase. Among immigrant homeowners, these results are even more pronounced. Among the foreign-born homeowners, more than one-half — 52 percent — revealed they have owned their home for fewer than five years and 79 percent indicated that their current home is a first-time home purchase.

Family and Investment Are Prime Motivating Factors

Family considerations are the strongest motivation behind purchasing a home, followed by owning the home as a financial investment.

By far, the primary motivating force among respondents to becoming homeowners is due to family considerations. Nearly 40 percent of all Latino homeowners indicated that "more room for a growing family" was the top reason behind their home purchase. This greatly eclipsed the second strongest motivation towards homeownership as a form of financial investment, a view expressed by 22 percent of respondents.



Similarly, there is a strong tendency to see homeownership as a critical advantage in the raising of a family. Ninety percent of homeowners strongly agree that "owning a home is better for raising a family," while 89 percent also strongly agree that "owning a home is a good financial investment for me."



Top Challenges: Finding the Right Home, Understanding the Process

Finding the right home and understanding the home-buying process were the top challenges among homeowners. Foreignborn Latinos, in general, faced far greater challenges across the board than their U.S.-born counterparts.

Among the top challenges in becoming a homeowner, respondents expressed that "finding a home" was the biggest obstacle at 37 percent and "understanding the homebuying process" was expressed by one-third of all respondents. Other impediments indicated by homeowners are: the application/ paperwork process at 29 percent, coming up with the down payment at 28 percent, and finding a good realtor/real estate agent at 22 percent.



The foreign-born population revealed a far greater degree of difficulty among all these factors compared to the U.S.-born population. The gaps are particularly wide in terms of "selecting/finding a lender," "finding a good realtor/agent," and "finding a community I liked."



Legal Ownership Patterns

More than 70 percent of Latino homeowners indicated that two or more people share legal ownership of their home.

More than 70 percent of Latino homeowners surveyed indicated that they have two or more names on the mortgage title. Among those born outside the U.S., this is slightly higher. Generally, this includes the primary homeowner in addition to the spouse — as 60 percent of respondents indicate his/her spouse shares legal ownership of the home. Among the foreign-born segment, 70 percent indicate that their spouse shares legal ownership.



It is also predominantly the owners and their spouses who contribute to the down payment and monthly mortgage payment for the home.

Greater Financial Burdens with Mortgage

Foreign-born Latino homeowners devote a considerably greater amount of their income to mortgage payments than U.S.-born homeowners. An average of 43 percent of their household income is spent on the monthly mortgage, compared to 32 percent among U.S.-born.



On average, Latinos are spending 38 percent of their income on the monthly mortgage payment, significantly higher than the recommended 30 percent income threshold. More than one-third of these homeowners are spending greater than 40 percent of their income on the mortgage. The differences are considerably wider between U.S.-born and foreign-born homeowners. Whereas the average U.S.-born Latino homeowner in California spends 32 percent of his/her monthly income on the mortgage, the average foreign-born homeowners indicate that they devote 43 percent of their income to monthly housing payments.



Affordable Prices, Low Down Payment

A majority of Latino homeowners financed their home purchases with conventional bank loans. Most home acquisitions were below $150,000.

More than three-quarters of Latino home buyers financed the purchase of their home with 30-year loans — mostly with fixed interest rates. While a majority of these loans were conventional loans, one-quarter of the loans were government-backed FHA (Federal Housing Administration) loans.



Latino home buyers are concentrated in what, in California, can be considered the lower end of the market. Sixty percent of all the homes purchased by California's Latino homeowners cost less than $150,000, and nearly one-quarter of the homes were purchased at $80,000 or less.²⁷ Only a little more than one-quarter of homes purchased by Latinos were priced above $150,000.



Since prices for housing purchased by Latino home buyers tend to be significantly below the median prices of California, the down payments for acquiring the homes have been smaller as well. Only ²⁸ percent of homes purchased required a down payment of $10,000 or greater. Conversely, more than half of all home purchases were purchased with a down payment of less than $10,000.



The Integral Role of the Real Estate Agent

Real estate agents play a critical role in navigating the home-buying process for the great majority of Latino home buyers, particularly in facilitating paperwork, identifying a lender, determining the right price range for acquisition, and explaining how to finance the home purchase.

During the home-buying period, the real estate agent/realtor plays a critical role in bridging homeownership for many existing homeowners, according to survey results. In particular, immigrant Latinos relied heavily on real estate agents on multiple levels during the home-buying process compared to U.S.-born respondents.



Overall, among existing Latino homeowners, nearly 80 percent of respondents indicated that their agent provided support in handling the paperwork, followed by finding a lender, determining the amount of house the respondent could afford, and explaining how to finance the home purchase. Likewise, real estate agents/realtors have been the primary resource for helping respondents find the lender.

Profile of Latino Renters

The vast majority of the Latino renting population are immigrants; 80 percent were born outside the U.S. — 66 percent in Mexico.

Of the 300 surveys conducted among California's Latino renters, more than three-quarters of this group demonstrated a preference for Spanish over English. This is also a population that is predominantly foreign-born — 80 percent were born outside the U.S. (66 percent in Mexico) and only 16 percent were born in the U.S. Among California's Latino renter population, one-half of respondents indicated they live in apartments, while more than one-third reside in detached, single-family units.

The Financial Burdens of Renting

Nearly one-half of all Latino renters pay more than 30 percent of their monthly income on rent. More than one-third pay more than 40 percent.



Forty-seven percent of all Latino renters indicated they are paying more than the recommended 30 percent of their monthly household income on rent, while only onequarter pay less than 30 percent. Moreover, more than one-third of respondents revealed they spend greater than 40 percent of their monthly income on rent payments.

Foreign-born Latinos pay an average of 45 percent of their monthly income on rent compared to 35 percent for U.S.-born Latinos.

Foreign-born Latinos pay considerably more rent as an overall portion of their monthly income than their U.S.-born counterparts. Whereas the average percent of monthly household income spent on rent for U.S.-born Latinos is 35 percent, for foreign-born Latinos the monthly average is 45 percent.

Purchasing a Home in the Future

Among renters who previously attempted to purchase a home, the top two reasons for being declined are: "bad credit/no credit" and "insufficient income for down payment/no money."



Among all renters surveyed, 14 percent revealed they previously attempted to purchase a home. The two primary reasons they were previously unsuccessful in purchasing a home were "bad credit or no credit" and "insufficient income for down payment/no money."

Unbridled Optimism for Future Homeownership

Overall, Latino renters are very optimistic about their likelihood of purchasing a home at some point in the near future — nearly 70 percent are confident they can purchase a home within the next five years.



Despite previous unsuccessful attempts revealed by some renters, overall, Latinos are extremely optimistic about their likelihood of purchasing a home within the near future. Sixty-nine percent of respondents expressed they are likely to purchase a home within the next five years — and 37 percent feel they are either "extremely likely" or "very likely" to reach their home-buying goals within this time frame.



Among respondents who say they are likely to purchase a home within five years, approximately 40 percent of them would be seeking a home within the first two years. In addition, more than half of these respondents expressed a high level of confidence they will be able to achieve their goal of homeownership. This is a sign that, despite rising prices and limited financial resources, Latinos remain a potentially enormous market for mortgages and related services in the years ahead.



The key issue for most Latinos is matching incomes and savings to the rising cost of homes. Among those who indicated they are not likely to purchase a home within five years, 43 percent of them cited insufficient finances as the primary barrier to reaching homeownership. However, almost half of them expressed optimism at being able to achieve homeownership beyond the five years.

Projected Home Prices and Down Payment

Most prospective Latino home buyers hope to purchase a single-family home — more than half of them are looking for a home of $150,000 or less with a down payment of $10,000 or less.



Overwhelmingly, at 83 percent, most of the prospective home buyers are seeking to purchase a single-family house. Among those renters who are seeking to purchase a home within five years, more than half of them are projecting they will make a down payment of $10,000 or less. Only a quarter of these prospective home buyers foresee placing a down payment greater than $10,000.

Likewise, more than one-half of these future home buyers are projecting the price of their future home to be $150,000 or less, while 32 percent project the future price of their home to be greater than $150,000.



Buying a House en Español

Almost 65 percent of potential home buyers prefer to conduct the home-buying process in Spanish — 78 percent prefer to work with a Latino real estate agent and 63 percent prefer to deal with a Latino lender representative.



According to the survey, 64 percent of prospective Latino home buyers generally prefer to conduct the home-buying transaction in Spanish, demonstrating a strong in-language preference. Likewise, 78 percent of respondents expressed a preference to work with another Hispanic/Latino real estate agent, and 63 percent expressed a desire to work with a Latino lender representative as well.