The most common way of building wealth in the United States comes from the appreciation of real estate. In fact, 25% of American's wealth is tied to their property value, and that number is closer to 50% for minorities. Clearly, for many of our nation's citizens building one's net worth relies heavily on the health of the housing market. Unfortunately, a study by the Russell Sage Foundation shows there's been a regular decrease in household values between 2007 and 2013. The decline has resulted in a loss of wealth for everyone, but overwhelmingly for households towards the lower end of the spectrum, who've lost a whopping 60% of their wealth within that time frame.
One of the main reasons for these losses is due to the Great Recession, which saw nearly 25% of Blacks and Latinos either become delinquent on their mortgage payments or lose their homes to foreclosure. In comparison, only 12% of white borrowers fell victim to those same circumstances. The result has led to an even larger disparity between the distribution of wealth in the United States.
The Challenges In Fixing The Distribution Of Wealth
While the Great recession is now behind us, many lingering effects are still being felt. One of the obstacles many individuals are facing is damaged credit. Tighter banking regulations have made credit unavailable for many potential homeowners, especially those with low-income. Individuals whose struggles during the recession damaged their credit now have poor FICO scores, resulting in an inability to prove their creditworthiness. Since the foreclosure crisis inordinately battered low-income households of color, millions of citizens have no other options but to bide their time until their credit scores repair themselves before they will be eligible for a mortgage.
What Options Do We Have?
It's unlikely major banking institutions will change their lending standards in the near future. Therefore, finding alternative lending methods have become a viable option for many individuals looking to borrow or repair their credit. For example, Patch of Land has developed a great working relationship with developers looking for funding for residential real estate projects. While local banks typically evaluate individuals on limited determining factors, our underwriters look at the bigger picture beyond FICO scores. Developers with a proven track record who are looking to repair their credit have found success using our crowdfunding platform and we will continue to provide those opportunities within the real estate industry. Of course, real estate crowdfunding is not the answer to all the problems that exist in regards to the inequality of wealth in America, but it definitely presents a great opportunity for many individuals looking to bounce back and start building wealth for future generations to come.
Patch of Land supports the JOBS Act and we look forward to the title provisions which will hopefully be passed by Congress in the near future, allowing all citizens the ability to take advantage of our services. Do you think real estate crowdfunding will help more Americans build wealth in the future? Leave a comment and let us know what you think.
