Everyone should be concerned about rising levels of inequality – especially residential real estate professionals.
The Brookings Institution just updated its data metrics on inequality in the U.S.’ largest metro areas, and the results are – to put it mildly – deeply unsettling.
Here in Chicagoland, for instance, the bottom 20th percentile of households earned just $16,706 in 2013, compared with $209,574 for households in the 95th percentile. That means that on a ratio basis, the 95th percentile is earning 12.5 times the income of the 20th percentile, a ratio increase of 1.3 (or 11.6 percent) in just the last six years.
The Inequality Quagmire
As we’ve written before, rising inequality is bad news for any sector of the economy, but it’s particularly bad news for the housing market, and for the simplest of reasons – if Americans are earning less money, they will be unable to pursue certain kinds of expenses, especially something as costly as a down payment on a house; after all, a 3 percent down payment on a $200,000 starter home still comes out to $6,000, and that’s not even counting closing costs and other tertiary expenses.
Although mortgage regulations, minimum down payments and interest rates all affect the homebuying process, income is the bottom-line indicator on whether or not someone can purchase a home. So basically, of all the economic measures agents should follow, none hold more sway over future housing activity than inequality.
See our graph below for further perspective: