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Consumer advocates and policymakers have long been concerned about banking deserts, areas where residents lack access to depository institutions and must rely on more expensive and less secure services such as check cashers.
A new report draws attention to mortgage deserts, or regions where home sales are much more likely to be financed with cash than with a mortgage. They range from Hudspeth County, Texas, where just 2% of home sales included a mortgage, to Detroit, Michigan, where nearly two-thirds of sales included a mortgage.
A report from the progressive Consumer Federation of America argues that it is important to document areas where mortgage access (often a proxy for mortgage access) is rare.
“Without access to mortgages, homeownership would be out of reach for most people,” wrote Sharon Cornelissen, director of housing at CFA and author of the report. “Access to housing finance is uneven across communities, creating exclusion and inequality of opportunity.”
Mortgage deserts exist in both rural and urban areas, but for different reasons. In rural areas, where manufactured housing can represent a larger proportion of the housing stock and has traditionally been more difficult to obtain mortgage financing, new developments in construction and regulatory changes are helping to change the situation.
Rural counties may also have a higher percentage of affordable housing. In most of the counties CFA classifies as rural mortgage deserts, average home prices range from $53,000 to $91,200, significantly lower than the national median home value of $303,400 in 2023.
“Small” mortgages are often difficult to obtain. Lenders generally have to put in the same amount of effort and resources to get a mortgage of any size, so they may shy away from lower-cost mortgages. They may also have a hard time taking on cheaper housing because they require extensive repairs. “In the so-called ‘appraisal gap,’ the total cost of purchasing and renovating these homes often exceeds their renovated appraised value,” Cornelissen explained.
Finally, black residents make up twice as much of the population in rural mortgage deserts as in other rural areas: 15% versus 7%.
In contrast, the top urban mortgage deserts are mostly historically disinvested, primarily in black cities like Baltimore, Memphis, and Philadelphia. Many of these cities lost jobs during the decline of manufacturing in the 1920s.th A century later, many homes are still in disrepair or vacant, leading to an overall decline in real estate values.
As the report points out, mortgages not only enable the purchase of a home, but also give users financial flexibility. Homeowners enjoy luxuries that renters rarely have. You’ll have more stable monthly payments over time, and you’ll also have the opportunity to refinance your payments if interest rates drop.
Owners also gain home equity that can be used for home improvements, education, other expenses, or reverse mortgages for seniors. And, as USA TODAY reported, by forcing owners to save, American owners end up with far more wealth than renters.
“Without mortgages, families cannot become homeowners, cash investors have free reign, and communities struggle to build wealth,” Cornelissen concluded in the release.
