A suburban neighborhood with increasing home values.
Illustration by Lanette Behiry/Real Estate News

Upward mobility isn’t cheap for U.S. homebuyers 

A new report from Redfin found that homes in high-opportunity neighborhoods sold for nearly 40% more than homes in low-opportunity neighborhoods.

August 14, 2023
3 minutes

Key points:

  • High-opportunity neighborhoods are areas where children in low-earning households have a better chance of earning higher incomes as adults.
  • The largest price disparities between high-opportunity and low-opportunity zones are in segregated areas in the Midwest and South.
  • As home values rise nationally, the affordability gap will likely widen.

Many families aspire to find a home in a neighborhood with good schools and opportunities for upward mobility — but that dream is out of reach for the many Americans who can't afford the high price tag.

A new Redfin report found that homes in so-called "high-opportunity neighborhoods" sold for $470,000, 38.2% more than homes in a "low-opportunity neighborhood."

To come up with its results, Redfin researchers sorted home sales in the 100 biggest metro areas into three categories: low-, intermediate- and high-opportunity areas. In a high-opportunity neighborhood, children from low-earning households became higher-earning adults compared to the typical person who grew up in their metro area at the same time, according to the report.

Those high-opportunity areas tended to have highly rated schools, plenty of networking opportunities, a large number of college graduates and lower rates of poverty and crime.

The findings show the difficulty, particularly for people of color, of gaining access to neighborhoods that offer children the best shot at financial success, said Redfin Deputy Chief Economist Taylor Marr.

"Where you grow up lays the groundwork for your future," Marr said. "Kids raised in low-opportunity neighborhoods have a lower chance of getting a good education and well-paying job, growing a robust professional network, building wealth through home equity and staying out of harm's way. That can perpetuate a cycle of segregation and wealth inequality that can last for generations, with their children and grandchildren often grappling with the same disadvantages."

The mobility report also found that high-opportunity zones have more homes for sale — if buyers can afford the higher prices. Nearly 40% of U.S. homes for sale are in high-opportunity neighborhoods, according to the report, but only 13% were affordable for those who made the metro area's median income. For the typical Black household, only 4.2% of those homes were affordable.

Homes values on the rise, further squeezing buyers 

The quick recovery in home prices may also make buying in those high-opportunity zones more challenging going forward. In separate reports, Redfin found the U.S. housing market has recovered nearly $3 trillion in value that it lost when interest rates first began rising between June 2022 through February 2023. It also noted that nearly 1 in 10 U.S. homes are worth at least $1 million, close to an all-time high.

The price difference between high-opportunity and low-opportunity zones is greatest in Midwestern and Southern metros and tends to be in the most segregated areas, according to the report. 

Homes in a high-opportunity area in Detroit, for example, went for $240,000 in 2022, which is 269% higher than the $65,000 median sales price in low-opportunity areas. Memphis had a 187% difference, followed by Akron, Ohio (169%), and Milwaukee, Wisconsin (149%).

The New York metro area was the only place in the U.S where median homes in low-opportunity areas were actually more expensive than in high-opportunity areas.

Improving mobility is possible

The Redin report also touched on other studies addressing disparities in opportunity. One research paper looking at housing vouchers in the Seattle area found that when given resources to help find affordable housing, 53% of voucher recipients chose high-opportunity neighborhoods. Of those who didn't have access to those resources, only 15% were able to move up to high-opportunity areas.

"Redesigning affordable housing policies to provide customized assistance in housing search could reduce residential segregation and increase upward mobility substantially," the paper concluded.

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