“Housing affordability, which had greatly benefited from falling mortgage rates, is now being challenged due to record-high home prices,” said Lawrence Yun, NAR’s chief economist. “That could place strain on some potential consumers, particularly first-time buyers.”
Housing affordability was already a problem
The report said that while real household net worth improved between 2016 and 2019 due to rising home prices and homeownership rates, as well as the stock market’s steady climb, those gains are likely to be offset by the economic impact of the coronavirus pandemic.
“Middle-class households did not fully recover from the financial crisis, and the poor saw their net worth turn negative and stay negative,” said John C. Weicher, director for the Center for Housing and Financial Markets at the Hudson Institute, who conducted the study.
“Meanwhile, the rich recovered faster and their share of wealth increased,” he said. “The result is a less-equal America, and many families that fell behind have reasons to worry as they cope with the pandemic and move closer to retirement.”
Home prices rising faster than incomes
One big problem is that the cost of a home is still rising at a pace that is no match for meager increases in income.
Homebuyers in the most unaffordable cities would need to earn up to $43,567 more per year to avoid being cost burdened, according to Point2, which noted that this comes at a time when many Americans may have seen household income disappear due to job losses.
Meanwhile as entry-level home buyers are being shut out, those who can afford it are buying larger or more expensive homes.
While there were 22% fewer homes sold under $100,000 in November compared with the year before, largely because of lack of inventory, the number of high-cost homes sold has skyrocketed, according to NAR. Closings for homes between $750,000 and $1 million were up 85% in November compared with the year before, and homes sold over $1 million were up 88%.
Increasing the racial divide in net worth
“There is robust home price appreciation and that builds wealth for those who own a home,” said Laurie Goodman, vice president at the Urban Institute and co-director of its Housing Finance Policy Center. “But the Black and Hispanic homeownership rates were a lot lower than Whites to begin with.”
“As credit has tightened as a result of the pandemic, you increasingly squeeze out Black and Hispanic borrowers who tend to have a higher debt-to-income ratio and lower credit scores,” said Goodman.
Homeownership is one of the most direct ways to build generational wealth, she said, and while the average Black or Hispanic homeowner has much less wealth than their White peers, a greater portion of their wealth is home equity.
Goodman said the median wealth of a Black homeowner is $113,000 and their home equity is $67,000, and for a Hispanic homeowner the median total wealth is $165,000 of which home equity is $95,000. Meanwhile, the median wealth of a White homeowner is $300,000, of which $130,000 is home equity, according to the Urban Institute’s research based on data from the Survey of Consumer Finance.
“For Black homeowners, way over 50% of their wealth is in their home,” she said.