If you bought a house before 2022, you should be among the lucky ones.
Rising mortgage rates, coupled with still-high home prices in most markets, are quickly putting home affordability out of reach for many.
While everyone is struggling, the situation is especially dire for first-time buyers, preventing them from building the kind of financial security that comes with owning a home.
And since home ownership is the primary source of wealth for most families, it only serves to exacerbate the wealth gap between those who own a home and those who don’t.
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how did we get here
During the Great Recession, home prices fell 33% across the country. But the historically low interest rates that followed created a very good buying opportunity.
In the decade leading up to the pandemic, owner-occupied home values rose again. In nearly 100 metropolitan areas, home values have increased by more than $8 trillion, according to a report from the National Association of Realtors.
But it was ultra-low interest rates during the pandemic years that spurred a buying boom, causing home prices to soar to record highs in many areas, and homeownership lost view for many.
Since the start of the pandemic, the cost of owning a home has reached new heights. According to Zillow’s August Housing Report, the monthly mortgage payment on a typical home purchased in 2022 has nearly doubled since 2019, from $897 to $1,643.
That makes it doubly difficult to stand up on the ladder of the property, if you haven’t already. But it also means that people who were homeowners before the pandemic, demand sent prices skyrocketing, have the advantage of a lower mortgage payment and, most likely, a lower fixed interest rate.
They are paying much less each month for the home than the person who bought during the pandemic, or since interest rates started to rise in mid-2022.
Which means that the net worth of homeowners is increasing much faster than that of non-homeowners.
That said, there was already a significant gap. The median household net worth of homeowners was about 40 times that of renters before the pandemic, according to a survey released by the Federal Reserve in 2020.
The data shows that American homeowners, before the pandemic, had a median net worth of $255,000, while renters had a net worth of just $6,300.
Read more: How much money do I need to earn to be in the top 1%, 5%, and 10% in the US? It may be less than you think
Now, there’s likely to be a much bigger difference thanks in part to home equity and rental prices.
Nearly half of US homeowners were considered “equity rich” in mid-2022, according to ATTOM’s US Home Equity and Underwater report.
It’s the highest percentage ever seen, said Rick Sharga, executive vice president of market intelligence for ATTOM, which collects housing data from markets across the country. Being Equity Rich means that your home loan is half, or less than half, of your home’s estimated market value.
But it is concentrated in certain areas.
But not all corners of the country have been equally affected. Eight of the top 10 capital-rich states are in the West, while 12 of the 15 states with the lowest percentages of capital-rich households are in the Midwest and South.
At the same time, rental prices have skyrocketed in major metropolitan areas.
The median rent for a one-bedroom apartment in New York City, according to the Zumper online apartment search engine, is nearly $4,000. That’s a year-over-year jump of 20%. In San Francisco, the average one-bedroom apartment costs $3,000, up 10% from last year.
If you’re paying rent in a major city, it will be difficult to save for a down payment, putting homeownership much later.
It stands to reason that those who own homes, and who bought them at the right time, will continue to see their net worth increase. While people who haven’t bought will continue to fall behind, especially if they live in an expensive city.
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This article provides information only and should not be construed as advice. It is provided without warranty of any kind.