PHOENIX — Nearly every zip code across the Valley is reflecting the radical change in home prices over the last year. Most have jumped 20% in just 12 months, and some more than 50% in the past five years.
“To own a piece of land, to be able to grow long term with this state, with the city that we’re in, is just a great blessing,” said Reggie Relf.
Relf is one of the lucky ones. He snagged his new Peoria home, over asking price of course, in April. But the extreme market forced him to take extreme measures to win the home, allowing the current owners to continue living in it for two months free of charge.
“We’re in a sellers' market that’s unprecedented and living in Arizona for as long as I have, it is only going to get worse,” said Relf.
And that spells trouble for communities of color and lower-income families. As prices soar, the opportunity for those with limited financial flexibilities or lower down payments to get a home dwindles. Creating a massive wealth gap that could continue for years.
“Unfortunately, if you have ten buyers for one home, you’re going to have nine losers in that transaction,” said Casey Taylor.
Taylor has spent decades in the real estate industry. He warns this current market is already pricing many out of home ownership, especially those looking to utilize VA or FHA loans allowing for minimal down payments. Offers that are increasingly hard to get accepted as more and more buyers come in with all cash or higher down payments.
“It’s very similar to the 20-year-old who starts their 401k versus the 20-year-old that doesn’t, this person invests for 10 years over time, their amount of wealth is going to be substantially higher than if this person starts at 30,” Taylor said.
Just look at the numbers. On average the net worth for someone making under $26,000 a year who rents is $1,500. Compare that to someone making the same income who owns a home, their net worth catapults to $102,000. At every level of income, the wealth gap between homeowners and renters gets bigger.
“For many people, it is the largest single investment that they make, and it allows intergenerational wealth to be passed along,” said Mark Stapp, professor at the WP Carey School of Business.
Right now, the median homeowner has 40 times the household wealth compared to a renter.
That comes out to $254,900 compared to $6,270.
“When that begins to occur, we have a larger societal problem that’s building, and this has particularly been an impact on communities of color,” said Stapp.
US Census data shows Black Americans still have the lowest rate of home ownership compared to other racial groups at just 47%, Hispanic Americans 51%, and White Americans 76%. It’s a gap many experts believe will widen even further as rent is also hitting record peaks.
“If you have to continually have to pay more of your income towards housing that means you have less ability to save and if you can’t save, you can’t afford a down payment,” said Stapp.
A cycle both the government and private industry is looking to solve. One that must be addressed quickly before the barriers to home ownership become insurmountable.