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How buying a home became a key way to build wealth in America

JUANA SUMMERS, HOST:

Potential homebuyers are facing several challenges in 2023. Home prices and interest rates are high. The supply of homes for sale is low. That's left many potential buyers feeling pessimistic.

REBECCA BUSCH: I guess I've been discouraged about the prospect of becoming a homebuyer. I - yeah, I wonder if that - is that something that I still want to do?

SUMMERS: Rebecca Busch (ph) is 27 and lives in Tennessee. She was looking for a home last year but couldn't compete against buyers offering cash above asking price on homes she looked at. So right now, she's making do in her basement studio apartment.

BUSCH: I just kind of wonder if I need to figure out a different place to build wealth. Is it not in a home? I think ultimately, I still have that dream that maybe I will be able to buy a home, but right now, I'm trying to be open to the idea that maybe there's something else out there for me.

SUMMERS: Mariah Rogers (ph) also had to rethink her housing plans. Rogers is 50 and works as a real estate appraiser. She had been living in California. But as a single parent to four children, home prices in that state were out of her budget, so she moved to Alaska. She thought maybe there she could afford the home she wanted for her family. But that wasn't exactly the case. She ended up buying a 600-square-foot, one-bedroom condo.

MARIAH ROGERS: A closet has turned into beautiful bunk beds that look like they're from a children's book for the two little ones, the 4- and the 6-year-old. So every time they go to bed at night, they feel like they're climbing into their own little fort, in a way. And it's the same for the 12- and the 13-year-old - is the room is large enough that I've separated it in a way that they each have their own completely private space.

SUMMERS: Rogers herself sleeps on a foldout sofa in the living room. It's not the spacious home she might have imagined.

ROGERS: But it is my own little slice of pie and of the American dream. And it's a beautiful, beautiful slice, that's for sure.

SUMMERS: So how did home ownership become such a big part of the American dream? And how should Americans think about building wealth if they can't afford a home right now? We asked Chris Herbert. He's managing director of the Joint Center for Housing Studies at Harvard University.

CHRIS HERBERT: Well, homeownership has been a central way of building wealth, I would say, certainly all throughout the post-war period; the wake of World War II when the suburbs opened up. Although I would say importantly, it was not an avenue that was open to many people of color, particularly African Americans. And so while homeownership has long been an important source of wealth creation for whites, that hasn't been the case for Black Americans.

SUMMERS: Because you brought that up, I'd just like to ask you, do you have a sense or are you able to break down what the racial demographics of homeownership are today?

HERBERT: Well, today, about 73% of white households own their homes, where that rate is 43% for Black Americans. And so there's about a 30 percentage point gap in the homeownership rates between white and Black households. For Hispanics, the gap is somewhat smaller. Hispanics own homes at about a 47% rate. So the gap's a little bit smaller, but still substantial. So the difference between white households and Black and Hispanic households and the opportunities to own a home are substantial.

SUMMERS: What is it that is continuing to fuel the racial wealth gap when it comes to homeownership?

HERBERT: Well, one important piece of it is that historical pattern of owning and the fact that because people of color didn't get to own homes at the same rate in the '50s and '60s. And importantly, many times the pattern of racial segregation meant that people of color were living in neighborhoods that over time have been subject to disinvestment and not - have not appreciated as much - is that people - Black and Hispanic households today don't have as many parents who were homeowners. And that intergenerational transfer of wealth is an important means that people today are able to put down a down payment to be able to buy a home. So one big reason that we have such substantial gaps in homeownership today is it's a reflection of the significant gaps we had a generation ago.

SUMMERS: You know, if you think back to the 1950s, there were almost ideal conditions for a spike in homeownership. A housing boom and rising incomes meant that many Americans were suddenly able to buy homes. But, you know, the landscape today just looks really different. More and more Americans, especially younger adults, are now worried about their ability to buy a home, certainly right now, but perhaps ever. Can you talk to us some about the factors that are making homeownership today so challenging for so many people out there?

HERBERT: Well, you know, a big reason why it's so much more challenging today is just housing is so much more expensive relative to incomes than it was back in the 1950s. And there's several reasons for that. One is, back in the 1950s, we had wide open spaces on the outside of central cities that made it cheap to build whole new subdivisions of housing. And so we don't have that situation today. Most places are largely built out. If you want to find green space to build, you got to go way out from central cities.

And the other big difference between now and the 1950s, too, is that, obviously, we have a lot more regulation to control development so it doesn't have the environmental impacts that we are concerned about. We have a lot more impact fees that are leveled to pay for infrastructure than we had back in the 1950s that was largely paid for through either federal or state tax revenue. So the availability of land, the degree of regulation and many times needed regulation to control for environmental damages makes it much more expensive to build housing today.

SUMMERS: You know, and this leaves me thinking about all of those people who aren't homeowners. We've heard from many people who can't afford to buy a house right now and who are not entirely sure what to do with their money in the meantime. What are ways that people can continue to build wealth if they are unable to purchase a home right now?

HERBERT: Principle ways in which people, you know, generate wealth or get a high rate of return on their savings is through investments in financial instruments - stocks and bonds, mutual funds. Many people have access to that through their jobs. And so individual retirement accounts of various forms are a really important way of saving. Or you can put your money aside, and you'll earn a decent rate of return from that. The rate of return on stocks and bonds over the long term has certainly been higher than the rate of return on home ownership.

SUMMERS: It's been quite a struggle for many people across the country over these last few years who are trying to buy a home because of the pandemic, rising interest rates, the low supply of new homes. But I'd like to ask you if you see any reason for optimism right now. Are there ways that the housing market is improving for people?

HERBERT: If I were looking for reasons for optimism, I would say one is that we're probably in the darkest days now. We - well, the Fed has helped put the damper on house price growth. Interest rates should come down over the next two years. And so hopefully, we'll be in a situation where we won't see house prices inflating at such a high level and interest rates will have moderated.

The other reason for optimism, I would say, is that from a policy perspective, there's a lot of attention being paid to this issue right now. And I think that's leading policymakers and folks in the housing industry - and that includes lenders and realtors and builders who see good reasons why we should be expanding homeownership opportunities - are looking for ways to do that, looking for ways to provide new forms of credit and other supports to make homeownership accessible to people.

SUMMERS: That was Chris Herbert. He's managing director at the Joint Center for Housing Studies of Harvard University. Chris, thank you so much.

HERBERT: Thank you, Juana. Transcript provided by NPR, Copyright NPR.

Juana Summers is a political correspondent for NPR covering race, justice and politics. She has covered politics since 2010 for publications including Politico, CNN and The Associated Press. She got her start in public radio at KBIA in Columbia, Mo., and also previously covered Congress for NPR.
Brianna Scott is currently a producer at the Consider This podcast.
William Troop