A beautiful house is for sale

The pandemic is furthering the divide between luxury homeowners who experienced a boom in equity accumulation and lower- and middle-income families struggling to purchase their first home. Sales of high-priced and luxury homes (priced above $750,000 and $1M) respectively increased by 85% and 88% during the pandemic, while selling lower-cost homes (less than $100,000) decreased by 22%.

Upper middle class and wealthy families enjoy significant financial benefits as the stock market continues to soar and home prices appreciate. According to a CoreLogic study, the median increase in equity was $17,000 in the third quarter last year – the biggest increase since 2014. The pandemic resulted in low mortgage rates, causing a demand boom as many people looked to move out of major cities in favor of larger homes more conducive to remote work. The double-whammy of increased demand boom and higher prices locks many lower- and middle-income families out of the housing market.

For a few months during the pandemic, homes were more affordable as mortgage rates dropped. However, home prices are catching up to the boom in demand, putting a strain on searching families.

The Housing Problem

Lower- and middle-income families never fully recovered after the 2008 Financial Crisis, whereas wealthier families recovered faster and their share of the nation’s wealth increased. The median home net worth from 2007 to 2016 dropped by approximately 30%.

While these families struggle to rebuild, wealthy families caused a boom in luxury condo and home markets, distorting the housing stock. Housing construction still has not reached the same development rates as 2006 to 2007. The result is a distorted market in which home prices are increasing faster than wages. According to a study conducted by Point2, a real estate company, home prices increased faster than wages in 53 of the 100 largest American cities. Moreover, in 15 cities, mortgages took more than 30% of the family budget, causing significant financial distress.

The divide also exacerbates existing racial equity issues in homeownership. Black and Hispanic families were and are disproportionately affected by the pandemic. Prior to the pandemic, Black and Hispanic family homeownership rates were 42% and 48%, respectively, whereas White families’ homeownership rate was 72%. Most experts believe that the gap will increase post-pandemic as Black and Hispanic families were disproportionately laid off during the pandemic and have higher income to debt ratios.