The wealth gap between whites on one hand and blacks and Hispanics on the other stretched during the Great Recession to its widest level in a quarter-century, according to a new analysis of Census data. All racial groups saw their net worth shrink during the downturn, but that of whites shriveled much less, with the result that their median net worth is now about 20 times that of blacks and 18 times that of Hispanics.
The recession, which included a collapse in home values and high unemployment, took the greatest toll on minority wealth. From 2005 to 2009, median wealth fell by 66 percent among Hispanic households and 53 percent among blacks, compared with 16 percent among whites. The losses left Hispanic and black wealth at their lowest levels in at least 25 years.
“It’s not so much that the wealthy were busy getting richer – it’s that they slipped back less than those at the other end of the ladder,” says Rakesh Kochhar, a demographer and co-author of the analysis released Tuesday by the Pew Research Center.
In 2009, the median net worth of white households was $113,149, compared with $6,325 for Hispanics and $5,677 for blacks. That gap is about twice as large as the 1 to 10 white-to-minority wealth ratio that prevailed during the two decades before the recession.
The housing crash that began in 2006 reduced home values for most American homeowners, but it hit minority families particularly hard because more of their wealth is tied to their homes.
“For nonwealthy people in the US, the huge preponderance of the wealth they have is in home equity,” says Thomas Shapiro, a law and social policy professor who directs the Institute on Assets and Social Policy at Brandeis University in Waltham, Mass.
Among Hispanics, about two-thirds of their household wealth in 2005 derived from their homes. When the housing bubble burst, their median level of home equity declined by about half – from $99,983 to $49,145 – taking much of their wealth with it. Home equity for blacks – which accounted for about 59 percent of their household net worth in 2005 – fell by 23 percent, from $76,910 then to $59,000 in 2009.
A major reason many Hispanics were hit so hard by the housing downturn is where their houses are located – disproportionately in California, Florida, Nevada, and Arizona. In those states during the housing bubble of the 1990s and early 2000s, many Hispanics worked construction jobs and bought homes. Since the housing crash, construction jobs have evaporated and home prices in those states have seen the steepest declines.
“As the housing crisis slammed into America,” says Dr. Shapiro, “it slammed harder” in those states, as well as in low-income communities. Shapiro also notes that minorities tend to be more recent homeowners, who have had less time to build up home equity.
Meanwhile, white families tend to own other assets in addition to homes, which add to their wealth.
“If you’re less wealthy, you’re more reliant on single assets,” says Mr. Kochhar. “If you’re more wealthy, you have multiple assets.”
Whites are three to four times as likely as Hispanics and blacks to own stocks and mutual fund shares, according to the Pew study. About 28 percent of white net worth in 2005 came from stocks and mutual funds, IRA, Keogh and 401(k) accounts, compared with 19 percent of net worth for blacks and 15 percent for Hispanics.
Minorities have also lost much of their wealth due to higher unemployment during and since the recession.
In June, the unemployment rate remained twice as high for blacks as whites – 16.2 percent compared with 8.1 percent – with the rate among Hispanics at 11.6 percent. Work hours and wages are also down across the board. As a result, families are forced to dip into savings or other assets or to borrow money to pay their bills.
Since the official end of the recession in mid-2009, the stock market has begun to rebound, but the housing market remains in a slump and unemployment has yet to drop much – meaning the wealth gaps persist.
“If anything,” says Kochhar, “one would suspect that the wealth gaps have increased a bit.”
Pew’s analysis is based on 2009 data from the Census Bureau’s Survey of Income and Program Participation (SIPP), which is considered the most comprehensive survey of household wealth by race and ethnicity. Household wealth, which is distinct from income, includes assets such as homes, cars, savings, and stocks, minus household debt.