Tuesday, May 31, 2005

Interest Only Loans, Gentrification, and Diversity

The Washington Post reports that over 1/3 of the loans in the DC area are interest-only loans. Within the District, the rate is over half.

My guess is that this isn't only happening in Washington. Most of the larger MSAs in the country are witnessing extremely rapid increases in home values. Here in Chicago, the median home price is $243,800 (according to the National Association of Realtors). That is a far cry from the median home price in areas near the lake and/or north of the Loop. In Uptown, which used to be known as a very affordable area of Chicago, the median price has increased over 80% in five years to $511,000.

This change in median value out-paces the income increases by a wide margin. One would be hard pressed to find someone who got 15-20% raises each of the last five years. Thus, housing is less affordable on the whole. It's unclear if the response has been the interest-only loan or if the interest-only loan has promoted these rapid increases.

In either case, this is yet another hurdle for African Americans and Latinos in the Chicago region. Not only are these groups disproportionately likely to have lower incomes, they are also more likely to be denied a mortgage or receive a sub-prime mortgage than whites or Asians.

Traditionally, Uptown has been an entrepot community area for low-income and minority immigrants to Chicago. It hosts numerous social service agencies and advocacy groups. And, it has the City's best Aldermanic friend to affordable housing development. Yet, despite all these forces for affordability, gentrification continues to roll through.

There are really only four community areas in the city that approximate the City's actual racial demographics. Uptown is one of them. The other three are Rogers Park, Edgewater, and Hyde Park. Three in the northeast corner of the city and one on the south side. Hyde Park is almost entirely due to the University of Chicago being located there. Activism is a much more important factor in the northeast. Rogers Park, Edgewater, and Uptown are diverse because the residents there fight hard to maintain that diversity. While this has not entirely clashed with gentrification efforts, the forces for gentrifcation and forces for diversity do not mesh well. Seeing that Chicago already consistently ranks in the top 5 of the most segregated regions in the nation, if gentrification ends up "whitifying" Uptown and the northeast it would be a very bad sign for the city and region.

2010 will be a very telling census.

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