The Extraordinary Wealth Created by the Pandemic Housing Market

Americans who own their homes have gained $6 trillion in housing wealth over the past two years. It doesn't mean that homebuilders have transferred $6 trillion worth of new housing to buyers or that existing homeowners have made $6 trillion in kitchen and bathroom improvements.

Home Equity in owner-occupied housing.

As home prices soared, housing wealth grew even faster.

The total home equity.

In owner-occupied housing.

As home prices soared, housing wealth grew even faster.

Most of the money has been created by the fact that housing in short supply and high demand across America has appreciated at a record pace. The 65 percent of American households who own their home have gained a share of the windfall.

It's a positive story for Americans who own a home, and it's also a positive story for those who don't. Rents are rising fast for them. Their incomes are being affected by inflation. Homeownership has been pushed out of reach because of the very thing that has created all this wealth.

The mass wealth creation event has been the only precedent in American history.

Benjamin Keys, a professor at the Wharton School of Business, is trying to find a parallel to this.

Less Americans have profited from the stock market's rise than before. The run-up in home values was similar to the last housing boom, but was limited to fewer parts of the country. The kind of bust that economists say is less likely to happen this time is what equity vanished in. The 1889 Oklahoma Territory land rush, or the 1920s Los Angeles oil boom, were events that abruptly changed who owned land and how much it was worth.

The $6 trillion figure doesn't include the equity in rental properties. It's an underestimate of the wealth that's piling up in the housing market.

Hard-to-predict events could still claw back some of the total. Money in a bank account is not the same as wealth. It's not risk-free to use it if you want to sell a home or use a home-equity loan. Home equity can be used to send children to college, start businesses, invest in housing, and build even more wealth.

EmilyWiemers, an economist at Syracuse University who has studied how families use home equity to pay for higher education, said there is a rosy picture and a not-so-rosy picture. There is a group of kids whose parents don't own a home and who didn't see the increase in wealth.

This period of rising equity will allow some families to create intergenerational wealth for the first time. It will force other families to delay homeownership.

It will amplify inequality, as gains go disproportionately to baby boomers, and to white households, who have a homeownership rate that is 30 percentage points higher than that of Black households. Black home-owning families will benefit the most because of their wealth in the form of housing.

Cy Richardson, the senior vice president for programs at the National Urban League, said that there is no viable alternative to homeownership at the moment.

The households with the most expensive homes have seen the biggest gains. The poor fifth of households have added $600 million in home equity in the last two years because homeownership is so widespread. They have seen the biggest increases in wealth.

The total home equity of the generation.

Baby boomers hold more home equity wealth.

The total home equity is for owner-occupied homes.

Generation housing.

Baby boomers hold more home equity wealth.

People who recall the 2008 housing bust may be nervous. Mark Zandi, the chief economist at Moody's, said that this is a different housing market.

The bubble was defined by risky lending and overbuilding. Home buyers are much more secure with their credit scores, conventional mortgages and savings. There is a housing shortage nationwide. Families in search of more space during the Pandemic, and remote workers who could relocate to more affordable places, have all been affected by that. Home values have gone up nearly everywhere, making many of those affordable places not so affordable anymore.

Economists don't expect prices to fall now that interest rates are rising. There is too much demand for too little housing in America. It will be more expensive to access equity when rates rise. Mr. Zandi said that this equity will prove durable.

The average homeowner with a mortgage has gained $67,000 inpable equity in the last two years, according to Black Knight, a company that tracks the mortgage market. It is possible for cash households to access cash while keeping at least 20% of the equity in their homes.

The average mortgage holder in the San Jose, Calif., metro area has picked up $230,000 in two years. In Idaho, it is $114,000. It's $27,000 in Cleveland.

Michael Lovenheim, an economist at Cornell, said it was great for large swaths of U.S. households. This is happening in Ithaca as well.

Mr. Lovenheim found that families with higher home price growth were more likely to send their children to college. The children who went to college were more likely to attend public universities.

He and colleagues found that households with rising home values were more likely to have children. Other researchers have shown that they are more likely to start businesses of their own.

Is this wealth real? Mr. Lovenheim said.

The first home that Julio Velezon II was able to buy in Springfield, Va., has changed his life. He and his wife had a child there. They were able to buy a larger home in December and keep the first home as a rental property.

He knows how his life would have been different if he hadn't bought a home in 2019.

Mr. Velezon, a 35-year-old Air Force technical sergeant, said he wouldn't have felt comfortable having a child when they were moving and renting.

He thinks that his son could live as an adult in one of these homes.

Mr. Velezon's story is out of reach for other families who come to First Home Alliance, a housing counseling nonprofit based in Northern Virginia. A family making $70,000 a year can't compete for a three-bedroom in the area.

The president of First Home Alliance said that some of them have to wait. They can't purchase in this area.

They will wait for their incomes to rise, or for home prices to cool, or for new home building to pick up.

Mr. Keys is worried that all this housing wealth will only reinforce aspects of the American housing market that are fundamentally problematic: that families feel they have few alternatives to build wealth, that housing must act as both shelter and financial asset, and that homeowners are motivated as

There is something that is kind of harmful about this. Millions of people have made trillions of dollars by not doing anything.

It's worse than that.

He said that the wealth has been created because it is hard to build housing in America. That could make it harder to build more of it.