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Metro Areas Facing Growing Inequality

According to a National Association of Realtors (NAR) recent study, rising prices of homes have helped homeowners build housing wealth, but the research found a worsening inequality in homeownership gains in metro areas.

The study estimated wealth and income inequality in 100 of the largest metropolitan statistical areas across the U.S. based on homeownership rates, changes in single-family median home prices, and a measure of inequality (the Gini Index) between 2010 and 2013.

In more than 90 percent of metro areas, homeownership declined when the value of homes rose and income remained constant, the study says. Also, the distribution of wealth was found to be more unequal in places with low homeownership rates. This includes pricey areas such as Los Angeles, New York, and San Diego.

“Homeownership plays a pivotal role in the U.S. economy and has historically been one of the primary sources of wealth accumulation for middle class families,” said Lawrence Yun, NAR chief economist. “Home prices have steadily recovered in most metro areas in the past five years, providing a boost of $5 trillion in housing wealth (from the downturn’s cyclical low) for homeowners during this time.”

When renting households cannot become homeowners this leaves them behind financially, he adds. Rises in home values and declining mortgage balances means a higher net worth for a homeowner. In contrast, renters endure rising rental costs and are not likely to invest in the stock market.

“Unfortunately, due to an underperforming labor market, insufficient housing supply, and overly-stringent underwriting standards since the recession, homeownership has plunged to a rate not seen in over two decades,” Yun said. “As a result, the country has become more unequal as the number of homeowners has fallen while the number of renters has significantly risen.”

The study observed different levels of inequality by finding the change in the number of owners and renters during times when home values are up. The researched showed that from 2010 to 2013, 93 out of 100 markets encountered a declining homeownership rate.

Metro areas such as Los Angeles, New York, Las Vegas, Fresno, CA, and San Diego have the most unequal wealth distribution due to low homeownership rates and greater inequality because renters usually have a lower net worth than homeowners, the study showed.

“Changes in wealth during this period are especially profound in high cost metro areas that have seen robust price growth,” Yun said. “For instance, a typical homeowner in San Jose, CA., enjoyed an increase of $210,671 in housing wealth while renters were left behind and likely exposed to annual rent increases.”

The study also used the Gini Index to emphasize the fact that wealth and inequality are growing across the county and discovered that 93 out of the 100 reviewed metro areas show a rising index. Bridgeport-Stamford-Norwalk, New York, Miami, and New Orleans have the most unequal distribution of income according to the data.

“The decline in homeownership has serious implications for our economy and is currently leading to a more unequal America,” Yun said. “Although better economic conditions should eventually open the door for more prospective buyers, improving access to mortgage products to creditworthy borrowers and ramping up new home construction–especially to entry-level buyers–will help ensure the opportunity is there for more American households to enjoy the potential wealth benefits and long-term stability homeownership provides.”

 

About Author: Xhevrije West

Xhevrije West is a writer and editor based in Dallas, Texas. She has worked for a number of publications including The Syracuse New Times, Dallas Flow Magazine, and Bellwethr Magazine. She completed her Bachelors at Alcorn State University and went on to complete her Masters at Syracuse University.
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