Will Fewer Mortgages Drive Immigration Reform?

When it comes to real estate it seems foolish to leave $500 billion on the table but that’s pretty much the situation. Why? Because of the failure to attract more Hispanic buyers, the one group most likely to power future home sales and mortgage borrowing.

The opportunity for new sales and additional pressure to push home values higher is fairly obvious: Hispanics represent the fastest-growing segment of the U.S. population and like wave after wave of immigrants before they have bought into the idea of real estate ownership as an embodiment of the American Dream. Combine big numbers with big desires and the result should be far more home  sales and mortgage originations but that isn’t the case: The Hispanic market is not nearly as robust as it might be and that impacts the overall economy.

Why do we not see more Hispanic buyers? The answers turn out to be both complex and troublesome.

The Growing Hispanic Population
Hispanic population growth is substantial, visible and important in many states and major metro areas.

“The Hispanic population has grown 50.6 percent between 2000-2012 and is projected to grow by 167 percent over the next 40 years — outpacing the growth of all other ethnic groups,” according to Nielsen, the big surveys and trends company. “Hispanics tend to be younger and have larger families and look to be the future’s more desirable targets for businesses catering to family-oriented products.”

And it gets better.

“For Hispanic families,” says Freddie Mac’s Christina Diaz-Malone, “homeownership is a source of pride, freedom, and safety. They also see owning a home of their own as a good financial investment and, more importantly, a good place to raise a family and plant roots in a community. As such, Hispanics are more likely than the general population to consider buying a home in the next few years.”

If you’re a real estate marketer the Hispanic population is a big and beautiful target, growing numbers of young families with an interest in real estate at a time when home sales are flagging, interest rates are low and home prices remain more than 6 percent below the 2007 peak.

It all sounds pretty good but there are two huge problems:

First, no group has been more profoundly impacted by the mortgage meltdown and the festering housing crisis than Hispanics.

“Median household wealth among Hispanics fell from $18,359 in 2005 to $6,325 in 2009. The percentage drop — 66 percent — was the largest among all racial and ethnic groups,” according to a 2011 study from the Pew Research Center. “During the same period, median household wealth declined  53 percent among black households and 16 percent among white households.”

Second, Hispanics — like other groups when they first come to the US — face enormous social, cultural and legal barriers.

The Politics of Immigration
“If we can get past the anti-immigrant sentiment that has so strongly colored the national conversation around immigration reform, we will see just how much our U.S. economy has to gain by legitimizing these people,” said Juan Martinez, president of the National Association of Hispanic Real Estate Professionals (NAHREP).

With the mid-term elections just a few weeks away and the 2016 presidential contests not far behind immigration reform has stalled in Washington, a hot-button issue that can’t be ignored much longer. Some in Washington favor immigration reform in part because they believe more Hispanics will support their election and re-election. Others are against immigration reform, in part because they  believe additional Hispanic voters will result in more votes for the opposition and fewer election wins for themselves. In other words, political self-interest is at the heart of the immigration debate, a not-unusual situation.

Meanwhile, demographics are destiny. In California, the biggest state for electoral votes, Hispanics are now the largest single racial/ethnic group, Pew research shows. A similar situation is evolving in Texas.

“Within a decade,” reports National Public Radio, “Hispanics are projected to eclipse non-Hispanic whites as the largest race or ethnic group in Texas. It’s a development that could someday shift the state’s — or, given the size of Texas, even the nation’s —  politics.”

Translation: Without Texas it will be virtually impossible to elect a Republican presidential candidate for years and decades ahead as the Hispanic population grows. In addition, senate and house seats will be increasingly up-for-grabs. You can see this pattern with the historic transition of black voters, a traditional Republican voting block until Franklin Roosevelt came along with the New Deal.

Or, look at the speed with which the acceptance of gay marriage has spread across the country, an issue which until recently was opposed by most voters. As Rep. Michelle Bachmann (R-MN) explained to Sirius Radio in September, gay marriage is now “not an issue,” adding that “in fact, it’s boring.”

Hispanic Immigration and Money
The question of immigration is not just a political matter it’s also one of money.

While the country is bogged down with the immigration debate the impact of delay on the nation’s housing market is real. NAHREP estimates that with the passage of immigration reform three million now-undocumented immigrants would seek homeownership once they have legal status. These new citizens “could  potentially afford a home worth $173,600, the national median sales price of a  home. This would generate more than $500 billion in new mortgages and about $25 billion in mortgage origination and refinance income.”

Also, says NAHREP, there would be a huge multiplier effect because “home purchases by three million legitimized immigrants would create $180 billion in additional consumer spending.”

Will money move the immigration debate along at a faster clip? The answer is likely “yes” and here’s why: Big business can really use a fresh source of new customers and it’s hard to look past the millions of potential homeowners and mortgage borrowers who will be created through legalization.

JP Morgan Chase Mortgage reported that third-quarter mortgage originations were $21.2 billion, down 48 percent from the prior year.

At the Bank of America, first-mortgage originations declined 59 percent in the second quarter when compared to the same period in 2013, “reflecting a decline in overall market demand for refinance mortgages,” according to a Bank of America news release.

The news at Wells Fargo was pretty much the same: In 2014, third-quarter residential mortgage originations amounted to $48 billion, down from $80 billion in 2013, a 40 percent drop, according to Wells Fargo.

The old adage is that all politics is local and the reality is that in many states Hispanics are now emerging as a larger and larger part of the population, a reality which politicians ignore at their peril. At the same time, the economic argument for legalization continues to grow in the harsh glare of declining business opportunities. It’s a combination that makes immigration reform  increasingly urgent — and likely.

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