Many aspire to achieve the American dream of owning their own home. However, policies enacted to combat the economic strain of COVID-19 are making this dream that much harder to grasp.
In June 2020, the Federal Reserve confirmed that it would hold its benchmark interest rate near zero through 2022 to help the economy recover from the COVID-19 pandemic. Why does this matter? When the Fed lowers interest rates, consumer savings earn less interest, because banks will lower rates paid out on cash held in bank investments (e.g. certificates of deposits, money market accounts, and regular savings accounts). This leads many to turn to other asset markets like stocks and real estate.
Despite widespread unemployment and business closures, the S&P 500, a common measure of stock market health, closed 2020 with a 16.3% gain. The Dow rose 7.3% in 2020. “To use an overused word, this has been unprecedented,” said Sam Stovall, chief investment strategist at CFRA Research, one of the world's largest independent investment research firms. “We've never seen anything like this.”
This is good news for consumers in the stock market, but a recent 2020 poll Gallup found that 55% of Americans currently own a stock. However, of this number the bottom 50% have only 2.2% of their net worth tied in stocks compared to their more affluent counterparts 34%. This means that most of 2020s market gains went directly to top earners. During the first 3 months of the pandemic, March - June 2020, Amazon founder Jeff Bezos saw his wealth rise by an estimated $48 billion. Meanwhile, those who don't own stocks and who suffered layoffs have fallen further behind.
The increase in the wealth distribution gap is most evident in the Real Estate market. Real estate is America's favorite asset class. In the DMV area, home prices have never been higher. The region's median sales price is now $675,000 — up 16.6% compared to October 2020, with the median sales price for a single-family home in the city rose above $1 million for the first time, to $1.1 million in October, according to Bright MLS, a leading listing site.
This increase is accredited to (1) increased demand for housing, spurred by lower mortgage rates thanks to the Federal Reserve's cuts and new migration patterns (as the new digital workspace has caused many people to leave urban areas) and the need for larger space brought on by lockdowns; as well as (2) decreased supply as homeowners fear opening their homes to strangers in the middle of a lockdown. The result has been chaotic, with Americans buying homes as fast they can be listed, oftentimes tens of thousands of dollars over asking. This oftentimes leaves working-class Americans, who can't afford to throw the extra money needed for a property, out.
If trends continue, the economic gap between the haves and have nots will simply continue to expand.