Homeownership builds wealth, but not all groups benefit equally
A recent NAR report found that while homeowners have generated significant wealth via appreciation, gains were uneven across income levels and ethnic groups.
- Homeowners of all income levels generated significant wealth through home appreciation.
- The amount of wealth, however, varied widely, and many Black and Hispanic households are left out entirely due to low homeownership levels.
- Black households have seen consistently smaller gains in home appreciation.
Owning a home is one of the most important ways to build wealth in America, but inequities persist across ethnic groups and income levels.
In its report released on April 18, the National Association of Realtors found that homeownership rates and income levels are closely correlated. Most low-income families rent; just 47% own their homes. That number rises to 69% for middle-income households and 87% for those at the upper-income level.
When looking at homeownership by ethnic group, there are similarly sharp contrasts. With homeownership rates of just 44.9% and 48.5% respectively, Black and Hispanic households continue to significantly trail the rates of white and Asian households, which are currently at 74.5% and 61.9%, respectively.
A decade of wealth-building through home appreciation
For those who were able to buy a home, the past decade was a crucial time for building wealth, said Nadia Evangelou, director of real estate research for NAR.
"Lower income, middle income and minority households were able to build a substantial amount of wealth through home appreciation," Evangelou said, adding that the early part of the pandemic saw some very strong gains.
But the amount of wealth built varied widely when broken down by ethnic group, according to the report. Asian homeowners gained the most wealth over the past 10 years, adding $239,430 in home appreciation. Hispanic households were next at $162,450, followed by white homeowners at $138,430.
Hispanic homeowners made big gains in the past decade, but appear to have been more impacted by losses that occurred during the Great Recession: When looking at wealth gains over the past 15 years instead of the past 10 years, Hispanic homeowners had the lowest gains among the ethnic groups analyzed.
Black families experienced the smallest wealth gains over the past decade, adding $115,430 in home appreciation.
Black households did make progress in certain markets, however, with home appreciation rise faster than white households in 27% of the areas studied. In some areas, including Lake Havasu City, Arizona; Bremerton, Washington; and Duluth, Minnesota, Black households saw wealth gains of more than $200,000.
Evangelou also noted that the homeownership rate for Black households is up compared to a decade ago, but is climbing at a slower rate than other groups.
Offering targeted tax incentives and building the types of homes that are most in demand in local markets could help boost homeownership rates for minorities and those with lower incomes, Evangelou said.
Homeownership still key to wealth generation
Despite variances in gains, owning a home during the past 5-15 years has resulted in wealth generation. Among lower-income families who have owned a home for a decade, wealth gains averaged $98,910.
While the percentage change in home values was significantly larger for properties owned by low-income households, middle-income (up $122,070) and upper-income ($150,810) households posted higher dollar value gains.
Along with the wealth gains accumulated in the last decade, homeowners also saw their debt drop by 21%, according to the report. Many homeowners who were able to refinance and secure a rate lower than 4% in the last few years may have paid off an even larger amount of their mortgage, said Lawrence Yun, NAR's chief economist.
When asked why the homeownership rate is significantly lower for low-income households, Evangelou pointed out that rising rent is one factor — 72% of those households were spending more than 30% of their income on rent in 2022, up from 65% in 2012.
"Renters are more squeezed now than they were 10 years ago," Evangelou said. "When they spend more of their income on rent, they don't have the ability to save more for a down payment."
Homeowners living in expensive cities saw the biggest gains at every income level. In the past decade, the biggest gains were in many California metros, including San Francisco and Los Angeles.
In several of California's markets, homes owned by low-income households appreciated faster than those owned by middle-income households. In Salinas, for example, low-income households added $460,640 in appreciation over the last decade, while middle-income households added $407,880 during the same time period.
Evangelou doesn't expect the next 10 years to look like the past decade in terms of wealth building through home appreciation, in part because the historically low interest rates seen earlier in the pandemic were such an unusual event in the market.
But that doesn't mean homeownership is no longer an important source of wealth. "Buyers should think of this as a long-term investment when it comes to building wealth," Evangelou said.