The US housing boom helped wealthy homeowners the most

House for sale US
A house’s real estate for sale sign shows the home as being “Under Contract” in Washington, DC, November 19, 2020.

  • The housing market rally has largely benefitted wealthy homeowners as prices soar at record pace.
  • Sales of homes priced over $1 million are up 245% year-over-year. Homes worth under $100,000 are down 11%.
  • The gap is just one of several K-shaped trends in the uneven economic recovery.
  • See more stories on Insider’s business page.

Like many other aspects of the US recovery, the housing market’s boom has been anything but even.

The market rally started as a broad upswing. After home sales tumbled at the start of the pandemic, surging demand and low mortgage rates spurred a nationwide buying spree. But as the boom charged forward, a K-shaped split emerged in which type of homes were rapidly gaining value and which were being left by the wayside.

The term “K-shaped recovery” has come to exemplify uneven elements of the US’s economic rebound. Wealthier Americans generally fared better through lockdowns as they switched to remote work and leaned on savings. Low-income Americans and minorities, however, have longer recoveries ahead of them after being disproportionately hit by the COVID-19 recession.

Existing home sales data published Tuesday reveals just how wide that gap has become in housing. Sales of homes worth at least $1 million have surged 245% year-over-year, according to the National Association of Realtors. That’s a larger jump than any other price category.

Conversely, sales of homes worth less than $100,000 have plummeted 11% from May 2020 and sales of homes worth between $100,000 and $250,000 dipped 1.7% through the year.

The disparities point to growing inequity in the US housing market. Homes worth up to $250,000 accounted for about 30% of sales in May, while those worth more than $1 million only represented 6.3% of sales.

The sales gap widened even further in the spring. As dire inventory shortage drove home-price inflation to its fastest rate since the mid-2000s market bubble with demand handily outstripping supply, sales for the most expensive homes soared even higher, and sales of homes costing less than $100,000 dropped lower.

Taken together, the country’s wealthiest homeowners benefitted most from the price rally, and those living in the country’s least-expensive homes have largely missed the market upswing.

Other data suggest the trend will continue through the summer. Housing starts have wavered in recent months as expensive lumber costs and lot shortages cut into homebuilding. And sales of new homes slid again in May, suggesting contractors are far from meeting massive demand with new supply.

New homes that have gone to market are also more skewed to wealthier buyers than a year ago. Where the majority of new homes in May 2020 were priced between $200,000 and $299,000, the majority now cost between $300,000 and $399,000, according to the Census Bureau.

The shift has little to do with more expensive units hitting the market, Ali Wolf, chief economist at housing platform Zonda, wrote in a Wednesday tweet. Instead, the change reflects price growth over the last year. Roughly 95% of contractors raised prices from April to May, and most of the increases averaged $10,000 or more, Wolf said.

Addressing the shortage will take a massive effort, according to NAR’s estimates. Decades of underbuilding and losses of existing homes left the US with a supply shortage of about 6.8 million houses, according to a report published earlier this month.

Builders will need to accelerate construction to 2 million units per year should they aim to fill the hole over the next decade, NAR added. That would be a sizeable jump from the May pace of 1.57 million homes per year.

“There is a strong desire for homeownership across this country, but the lack of supply is preventing too many Americans from achieving that dream,” Lawrence Yun, chief economist at NAR, said in the report.

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The US housing-inventory crisis is starting to bite existing home sales, which fell the most since August last month

FILE PHOTO: Homes are seen for sale in the northwest area of Portland, Oregon March 20, 2014.  REUTERS/Steve Dipaola
Homes are seen for sale in the northwest area of Portland.

  • Existing home sales fell 6.6% in February to the slowest rate since August, according to NAR data.
  • Inventory held at a record-low 1.03 million, underscoring the market’s supply-demand imbalance.
  • The median selling price crept higher to $313,000 to tie the record high seen in October.
  • See more stories on Insider’s business page.

Sales of previously owned homes in the US declined more than expected in February as the housing market’s supply shortage further curbed the recent buying spree.

Existing home sales fell 6.6% last month to a seasonally adjusted annual rate of 6.22 million, according to data published by the National Association of Realtors. The reading is the first decline since November and drags the pace of sales to its lowest since August. Still, sales are up 9.1% from the year-ago level.

Economists surveyed by Bloomberg had expected a more modest drop to a 6.49 million sales rate.

The median existing-home price crept higher to $313,000, marking 108 consecutive months of year-over-year gains. The new level ties October’s record high and sits 15.8% above the year-ago level.

Home inventory remained at a record-low 1.03 million units at the end of last month. Unsold units now count for two months of sales at their current rate, up slightly from January’s 1.9 month supply.

Supply was down 29.5% year-over-year at the end of February, underscoring the shortage that’s contributed to higher prices and a now-slowing pace of sales. Home purchases first boomed at the start of the pandemic as record-low interest rates pulled borrowing costs lower. Mortgage rates set several record lows in 2020 and further boosted buying activity.

Supply strains have since lifted prices even higher, and mortgage rates are now reversing their months-long decline. Lumber shortages have also pressured costs, with the National Association of Home Builders saying last month that rising material costs are adding $24,000 to the price of new homes.

These obstacles will likely curb the market’s rally as the economy reopens, Nancy Vanden Houten, lead US economist at Oxford Economics, said.

“We look for the pace of existing-home sales to drift lower over the course of the year as headwinds from a lack of supply and eroding affordability are partially offset by the tailwinds of still-strong demand, particularly from younger households and a solid recovery,” she added.

The National Association of Realtors is more bullish toward the strained market. While affordability is weakening, strong savings and a boost from Democrats’ latest relief package should keep demand elevated through 2021, Lawrence Yun, chief economist at NAR, said.

“Various stimulus packages are expected and they will indeed help, but an increase in inventory is the best way to address surging home costs,” he added.

Contractors are struggling to rise to the occasion. Building starts for new privately owned residences fell 10.3% to a seasonally adjusted annual rate of 1.42 million in February, according to the Census Bureau. That’s the lowest level since August and marks a second straight month of decline.

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