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American dream of owning a home less attainable as home values rise $2 trillion

·3 min read

The coronavirus pandemic has not stymied home values in the U.S. — a boost for Americans, and a hurdle for others.

The total value of all the homes in America rose $2 trillion to a total of $31.4 trillion in October, up 6.7% from an s estimated $29.4 trillion before the pandemic in February, according to a new study by Redfin, a Seattle-based online listing company. Rising home values have given homeowners more wealth but have made home purchases unattainable to millions of renters, according to economists.

“Housing is such a big way of making wealth for Americans,” said Schery Bokhari, the Redfin economist who authored the study. “It’s almost like there are two different classes — people who own wealth are really benefiting [from low interest rates] and those who are now unemployed or have experienced loss of income, are being left behind. They’re missing the boat.”

Homeowners are adding to their net worth during the pandemic faster than they did in years prior. Last year during the same eight month time frame ending in October 2019, home values had a 6.6% gain of $1.7 trillion, according to the study. The median listing price for a typical home was $350,000 during the week ending October 24, a $38,000 increase compared to the same week last year, according to Realtor.com. The 12.2% markup is largely due to high demand and low supply in suburban and rural areas during the coronavirus pandemic.

Human Hand Placing A Coin On Increasing Coin Stacks In Front Of House
Human Hand Placing A Coin On Increasing Coin Stacks In Front Of House

“The folks who have the means to buy — especially those who have the means to work from home... Those folks are doing really well,” said Bokhari.

But for renters, who are more likely to have lost their job and depleted savings during the pandemic, homeownership has become even less accessible. Their financial statuses are worse as home prices rise and lending standards tighten, according to studies.

“Because values have gone up and not down, homeowners can refinance or sell if they have to in a situation that’s really bad. It’s not like the last recession when values fell below what you owed on the house, so that’s positive news for all homeowners,” said Bokhari.

Price gains were the largest as a percentage in small, affordable markets like Milwaukee, Wis., Charlotte, N.C., and Austin,Texas, where home values were up 10.4%, 10.2% and 10.3% respectively, in October compared to last year.

Major cities had slower price growth but still posted big increases based on total dollars. Los Angeles homes appreciated only 4.3% during the pandemic, which translated into the largest dollar gains of any market, representing $82 million. Other cities with big-dollar price gains included Washington, D.C. and Seattle.

“The housing market has not waited for the labor market to recover and has sped along rather quickly,” said Bokhari. “Debt is so cheap and rates are so low, this was the time for people to be participating in the housing market, but it has actually skewed inequality even further.”

The record-high unemployment rates are locking first-time homebuyers out of homeownership, a group that was poised to drive the housing market in the pre-COVID economy, when, according to the Bureau of Labor Statistics and the Federal Reserve Bank of Atlanta, unemployment insurance claims were at a record-low of 3.5% and wage gains for low-income jobs were outpacing those for medium- and high-income jobs.

“If home prices are rising, usually incomes are also rising and people have jobs so they can participate in the market,” said Bokhari. “This cheaper debt was an opportunity they could have enjoyed, but not now, if they have lost income. So this unemployment situation is really causing a divergence from the [economic] path that we were on [pre-pandemic].”

Sarah Paynter is a reporter at Yahoo Finance.

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