Did you buy a home before the pandemic? If you waited until last year or are still renting, you're probably on the wrong side of a widening wealth gap — and here's why
If you bought a home before 2022, count yourself among the very lucky ones. Rising mortgage rates and home prices are still very high in most markets, but housing affordability is out of reach for many.
In December, Nadia Evangelo, chief economist for the National Association of Realtors, noted that mortgage rates are still more than double what they were a year ago and that limited inventory is keeping prices high.
She says buyers earning $75,000 a year "face the greatest housing shortage of any other income group."
"In a balanced market, these buyers should be able to buy half of the homes for sale. However, these middle-income buyers can only buy 20% of all available listings," Evangelo wrote on the NAR blog.
While everyone else suffers, the situation is especially acute for first-time buyers—and prevents them from building the kind of financial security that comes with owning a home.
And since homeownership is the primary source of wealth for most families, it only exacerbates the wealth gap between homeowners and homeowners.
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During the Great Recession, home prices fell 33% nationwide. But the historically low-interest rates that followed made for a very good buying opportunity.
In the decade leading up to the pandemic, owner-occupied home values rose again. In nearly 100 metros, homes have increased in value by more than $8 trillion, according to a report by the National Association of Realtors.
But it's ultra-low interest rates during the pandemic years that have encouraged a buying boom, sending house prices to historic levels in many areas — and driving homeownership out of sight for many.
Since the beginning of the pandemic, the cost of owning a home has reached new heights. According to Zillow's December housing report, monthly mortgage payments on a typical home have more than doubled since 2019, from $897 to $1,809.
This makes it difficult to get your foot on the real estate ladder if you still need to. But it also means that people who owned before the pandemic demand drove prices too high have the advantage of a lower mortgage payment and, quite possibly, a lower guaranteed interest rate.
They are paying much less each month for housing than someone who bought during the pandemic or since interest rates started to rise in mid-2022. This means that homeowner's net worth is growing much faster than it is for non-homeowners.
However, there was already a huge gap. The median household net worth of homeowners was about 40 times higher than that of renters before the pandemic, according to a 2020 Federal Reserve survey.
The data shows that pre-pandemic, American homeowners had an average net worth of $255,000, while renters had a net worth of just $6,300.
There's likely to be a much larger difference, thanks to home equity and rental prices.
Nearly half of American homeowners were deemed "equity rich" by mid-2022, according to ATTOM's report on US real estate stocks and Underwater.
It's the highest ever, said Rick Sharga, executive vice president of market intelligence at ATTOM, aggregating housing data from markets across the country. Being wealthy in equity means that the loan on your home is half or less than half of the appraised market value of your home.
But they are concentrated in certain areas.
But not every corner of the country has been affected to the same extent. Eight of the ten states richest in equity are located in the West, while 12 of the 15 states with the lowest proportions of homes rich in equity were in the Midwest and South.
At the same time, rental prices have gone up.
According to the online apartment search engine, York City costs close to $4,000. That's a 20% annual jump. In San Francisco, the one-bedroom average is $3,000—10% higher than last year.
If you're paying rent in a major city, it's hard to save up for a down payment, which puts homeownership on the back burner.
It makes sense that those with homes, who bought them at the right time, would continue to increase their net worth. At the same time, people who have yet to buy will continue to fall behind - especially if they live in an expensive city.
A better way to buy real estate?
Of course, buying single-family homes and apartments is not the only way to invest in real estate.
Amid constant inflation and an unstable economy, real estate tycoons still find ways to invest millions effectively.
For example, premium commercial real estate has outperformed the S&P 500 over the past 25 years. With the help of new platforms, these types of Opportunities are now available for retail investors. Not just the super-rich.
With a single investment, investors can own institutional-quality properties leased by brands like CVS, Kroger, and Walmart—and collect steady income from grocery stores every quarter.
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