Introduction
Homeownership represents a foundational aspect of the American dream, providing both financial security and a sense of stability. However, as many US metros face housing price escalation which far outpaces income growth, homeownership has become less attainable for many households nationwide. After reviewing the history of homeownership in the US, this article delves into current market conditions, important financial considerations for homeowners and homebuyers, key barriers and challenges, and a review of some of the most promising solutions in the space.
History of Homeownership
Homeownership in the United States has a complex and evolving history that reflects broader social and economic trends. Initially, in the early 19th century, owning land was predominantly accessible to wealthy individuals and those who could afford to build homes without financial assistance. This began to change as the government started to promote homeownership as a means of achieving the American Dream, particularly for the growing middle class. The Homestead Act of 1862 allowed many Americans, including immigrants, to claim land (up to 160 acres), provided they improved it by building a dwelling and cultivating the land.
During the Great Depression, homeownership rates plummeted as financial hardship made it difficult for homeowners to maintain mortgage payments. In response, the New Deal introduced significant federal intervention in the housing market. The creation of the Federal Housing Administration (FHA) in 1934 revolutionized home buying by insuring mortgages, which reduced down payments and extended repayment terms, making homeownership more accessible to a larger segment of the American population. The post-World War II era saw a massive boom in homeownership, fueled by an expanding economy, rising wages, and the GI Bill, which offered veterans generous lending terms.
The late 20th and early 21st centuries have been characterized by significant fluctuations in the housing market, such as the Housing Bubble and, subsequently, the 2008 Great Financial Crisis (GFC), which led to a major recession and a foreclosure crisis that impacted millions of Americans. In recent years, recovery has been uneven, with homeownership rates gradually stabilizing, but the dream of owning a home remains out of reach for many due to rising prices and changing economic conditions. Today, federal and municipal government organizations continue to implement policies aimed at making homeownership more inclusive and attainable, reflecting its enduring status as a cornerstone of economic stability and personal achievement.
Racial Inequality in Housing
The roots of racial inequality in homeownership in the United States can be traced back to discriminatory housing policies and practices such as redlining and racially restrictive covenants, which were prevalent throughout the 20th century. Redlining, a practice instituted by the Federal Housing Administration (FHA) in the 1930s, involved drawing boundaries around predominantly African-American neighborhoods to deem them high-risk and thus unworthy of mortgage lending. This policy effectively barred Black families from accessing home loans and accumulating wealth at a rate comparable to their white counterparts. Furthermore, the G.I. Bill provided post-World War II veterans with mortgage benefits, but systemic racism often prevented African-American veterans from accessing these benefits. This historical context set the stage for the long-term economic disparities that continue to affect minority communities today.
The disparity in wealth accumulation between homeowners and renters further compounds the issues rooted in these discriminatory practices. Homeownership is one of the most significant pathways to building intergenerational wealth, as it allows for equity growth over time. For many, the equity in their homes represents the bulk of their family wealth. However, the barriers to obtaining mortgages and purchasing property have historically kept a significant portion of minority populations, particularly African Americans, confined to renting. This limitation on property ownership directly affects their ability to amass wealth. According to recent studies, the median net worth of homeowners is significantly higher than that of renters, with the gap often most pronounced in communities of color. This wealth gap not only reflects the cumulative impact of historical housing discrimination but also underscores the ongoing challenges that hinder economic equality and perpetuate the cycle of poverty within marginalized groups.
Current Market Conditions
As of data from the U.S. Census Bureau, the national homeownership rate in Q4 of 2023 stood at approximately 65.7 percent. This number is not statistically different from the rate in the fourth quarter of 2022, which was 65.9 percent. Over most of the past decade, following a severe decline in the wake of the GFC, homeownership rates have seen gradual growth, rising from a 2016 low of about 63 percent. However, this latest data from the Census reflects stagnation, which is likely attributable to elevated interest rates.
Interest rates are manipulated by the Federal Reserve to maintain balance between encouraging economic growth and preventing rapid price inflation. They play a pivotal role in homebuyers’ purchasing power. Higher interest rates mean that buyers have higher monthly mortgage payments. As a result, some buyers may no longer be able to afford the home they desire and others may simply opt to wait for rates to decline. However, the reduced demand that this reaction creates can itself trigger a reduction in housing prices.
Nationwide, as of March 2024, the median existing home price had escalated to $393,500 as reported by the National Association of Realtors, marking a 4.8% increase from March of last year. Housing costs across the United States vary dramatically, influenced by geographic location, local economic conditions, and supply-demand dynamics. Regions with robust economic growth, particularly those with burgeoning tech sectors like the San Francisco Bay Area and Seattle, continue to see soaring housing prices. Conversely, areas with slower economic growth or those recovering from industrial decline, such as parts of the Midwest and Northeast, often have much lower housing costs. The lists below illustrate the variability in housing costs across the 50 most populous metropolitan areas in the nation.
Highest Median Home Value - Major US Metros
San Jose, CA - $1,422,600
San Francisco, CA - $1,135,500
Los Angeles, CA - $847,400
San Diego, CA - $846,600
Seattle, WA - $718,100
Boston, MA - $618,100
Denver, CO - $596,800
Sacramento, CA - $584,200
New York, NY - $578,800
Portland, OR - $556,700
Lowest Median Home Value - Major US Metros
Cleveland, OH - $209,900
Pittsburgh, PA - $209,800
Buffalo, NY - $219,300
Oklahoma City, OK - $224,400
St. Louis, MO - $237,700
Memphis, TN - $244,100
Detroit, MI - $245,500
Louisville, KY - $245,700
Birmingham, AL - $247,500
Cincinnati, OH - $248,700
Benefits of Homeownership
Homeownership is often touted as a superior financial decision relative to renting, primarily because of the potential for equity accumulation. Equity represents the part of the property that the homeowner fully owns, which is the market value of the home minus any remaining mortgage payments. Each mortgage payment increases the homeowner's equity, unlike rent payments, which yield no financial return. Because real estate generally appreciates over time, the equity homeowners hold in their homes typically increases in value. Twenty years ago, the median sales price of houses sold in the US was just under $200,000. Today, the median sales price is well over $400,000. Even after adjusting for inflation, this still reflects significant appreciation. And while local markets vary in the rate of appreciation they experience, research by NAR into home price trends indicates that the vast majority of markets experienced appreciation between 1990 and 2021.
Besides the ability to build wealth through equity in one’s home, other critical benefits of homeownership are cost stability and tax benefits. The former is the result of fixed-rate mortgages, which are the most common form of mortgage in the US and ensure that housing costs will remain unchanged throughout the duration (typically 30 years) of the loan’s repayment term. Tax benefits of homeownership include the ability to deduct mortgage interest and property taxes from federal income taxes, thereby reducing one’s total tax liability.
Downsides of Homeownership
In spite of the benefits above, homeownership is not without some downsides. For one, there is the financial commitment required to purchase a home, which, for most buyers, is among the largest individual transactions they will ever undertake. As with any sizeable purchase, buyers must consider the opportunity cost of committing their capital towards a home instead of other investment opportunities or material purchases. While the capacity of the home to double as a residence and an investment vehicle is often touted as an advantage, it also means that - if one’s local real estate market declines, for example - resident homeowners face a much greater barrier to divest themselves of the poorly performing asset. And, just as residence may negatively influence a homeowner’s ability to manage the home as a financial asset, the converse is also true: while renters can relocate without the burden of selling a property, for homeowners, the prospect of moving may be complicated by the need to sell the home.
In addition, the ongoing costs of maintaining a home can be substantial and unpredictable. Homeowners must cover all repairs and maintenance, from minor updates to significant expenditures like replacing a roof or HVAC system. These responsibilities can be financially demanding and time-consuming, and in regions where property taxes are high and the cost of ownership is steep, homeownership can quickly go from an investment to a financial strain.
Innovative Solutions to Promote Homeownership
At Ivory Innovations, we believe that there exists no single strategy, philosophy, or business model that will definitively and permanently ensure housing affordability for all Americans. And, as discussed in this article, homeownership is no exception. However, for low- to moderate-income Americans, especially, homeownership remains a crucial element of financial stability and important path for wealth accumulation. With thoughtful planning and support, homeownership can be a transformative investment, offering not just a place to live but also a means of economic advancement and generational wealth.
To further explore pathways to homeownership, we highlight the groundbreaking work of past Ivory Prize winners and finalists who have made significant strides in this area. These organizations have developed creative and effective strategies to increase accessibility, affordability, and sustainability in housing. Their efforts exemplify the potential for innovative approaches to reshape the landscape of homeownership, making it more attainable for diverse communities across the nation.
Home Lending Pal - Home Lending Pal transforms the process of determining eligibility for HUD vouchers to pay for a mortgage and other home-buying assistance programs, making it scalable, efficient, and user-friendly. By automating the complex analysis required to assess eligibility criteria, their AI-driven platform swiftly identifies potential beneficiaries, significantly reducing the time and manual effort traditionally involved in supporting underserved communities.
Foyer - Foyer is designed to be the entryway to homeownership for the next generation of first time homebuyers - providing confidence at a time when homeownership has never been more difficult. Foyer offers members personalized financial planning together with a First Time Homebuyer Savings Account aimed at helping them reach their homeownership goals faster and more responsibly.
California Dream for All Shared Appreciation Loan Program - The California Housing Finance Agency (CalHFA) uses financing programs that have helped more than 213,000 low- and moderate-income Californians achieve the dream of homeownership and created/preserved 73,000 affordable rental units. On the homeownership side, the Agency uses various down payment and closing cost assistance programs to assist first-time homebuyers. The California Dream for All Shared Appreciation Loan is one of those programs and its unique design reflects the State of California’s desire to assist underserved communities who have faced historical housing discrimination leading to disproportionately low homeownership numbers.
Frolic - Frolic is paving the way for thousands of new, multi-family housing cooperatives to be built on lots with single-family homes in cities across the U.S. Their homes require down payments of $10-$30k, creating opportunities for low-income renters and buyers to enter into homeownership.
Dearfield Fund for Black Wealth - Launched by Gary Community Ventures, in partnership with Denver's Black community, The Dearfield Fund for Black Wealth provides up to $40,000 in down-payment assistance to first-time Black and African American homebuyers to help build generational wealth. The Dearfield Fund for Black Wealth aims to close the racial wealth gap and accelerate Black homeownership by generating an average of $100K in net worth for 500-600 Black families, leading to $50-$75M in wealth creation for the Black community in Denver, CO. The fund seeks to build a community of practice and replication model to assist other cities in deploying this innovative fund model in their markets.
Rocket Community Fund: Make it Home Program - Make It Home, a Detroit-based financing program, allows for tenants in underinvested neighborhoods to become homeowners by providing loans and resources to buy and renovate blighted and tax foreclosed homes.
Home by Hand - Home by Hand is a nonprofit affordable housing developer committed to providing pathways to homeownership for low-and-moderate income New Orleanians in a manner that both builds family assets and supports neighborhood revitalization and resilience.
Acts Housing - Acts Housing supports families to purchase and rehabilitate distressed properties into stable homes through homebuyer counseling, representing families in a transaction and providing mortgage loans.
Keep by Framework - Framework is a for-profit social enterprise that supports access to homeownership by widening access and closing knowledge gaps. Framework helps people understand the process of buying a home — every nuance, every expectation, every pathway. Framework’s platform, previously delivered branded as the Keep by Framework app, helps home buyers understand the process to purchase a home and how best to maintain and stay in that home for the long term. With an emphasis on first-time, first-generation potential homeowners, Framework guides users through the entire process of purchasing a home, with a keen focus on assisting homebuyers confronting structural and persistent racial barriers and on democratizing the homebuying process.
Digs - Digs is a financial platform that empowers a consumer build wealth through their home. Their educational product allows renters to set and track savings goals leading up to buying their first home and existing homeowners to monitor their equity and optimize their mortgage. They work with mortgage lenders as a way to help them build a relationship with their customers outside of the transaction.
HomeFundIt - HomeFundIt is an online crowdfunding platform that allows home buyers to use gifts from family and friends for the down payment on a home. HomeFundIt also incorporates a grant opportunity and a cash-back shopping network to help home buyers increase their down payment even more.
Divvy Homes - Divvy is on a bold mission to reinvent homeownership by making it more affordable, more flexible, and a better fit for our customers’ lives. Divvy’s customers choose any home for sale, Divvy buys it on their behalf, and they rent the home back while building equity with every payment.
Home Partners of America - Home Partners has built an innovative financing and operating platform that has enabled thousands of households who currently are not mortgage qualified to gain access to high quality for sale listed homes in high quality communities by participating in our Lease Purchase program.
Point - Point is a fintech pioneer focused on improving homeowner finances. The company creates innovative home equity products to tackle challenges that traditional loans cannot address.