As black and brown communities continue to endure the lowest levels of wealth on record—a result of the housing market’s collapse six years ago—there’s one area of the real estate market that’s surging forward: properties that sell for 1 million dollars and up. As the rich dominate the housing market, everyone else is left behind. Given that white people make up nine out of 10 of wealthy households, the disproportionate gains at the top of the market have racial implications as well.
Top-end home sales were the first to recover from the housing meltdown and have been rocketing upward ever since. This trend is but the latest sign of divergence between the rich and everyone else. And there aren’t just domestic factors at work here; the luxury housing boom is the result of global forces of inequality turbocharged since the financial crisis. This points to a fundamental change in the way our economy operates.
In the wake of the Great Recession, growth in purchases of a homes valued at $1 million dollars or more has at times outpaced that of homes on the market for $250,000 and less by as much as 3-to-1.The surprise is that it’s worse than it even looks. The downward spiral in home sales below $250,000 would be even steeper if the rich weren’t snapping up vacation homes at a bargain. So far this year, sales of part-time vacation homes—with a median price of nearly $200,000—have increased by the largest amount in over a decade. Fueled by wealthy buyers, this activity in the middle part of the housing market is actually helping to prop up the cost of lower-priced homes. Economist David Berson told The Wall Street Journal that even though “the benefits of second homes accrue disproportionately to the upper half of the income distribution” ultimately “it’s a positive thing.”
But even the most expensive of homes for the wealthy are soaring to new levels. In the first three months of 2014 home sales of $2 million and above were 1/3 higher than in the previous record-breaking year of 2013. In May, sales of million dollar homes were almost five times greater than those selling for $100,000 and less, according to the National Association of Realtors. As Bloomberg News,“million-dollar homes in the U.S. are selling at double their historical average while middle-class property demand stumbles.”
What’s great news at the top of the housing market is bad news for everyone else.
Although overall housing market values have recovered from the 2008 meltdown, the reality is that these gains are concentrated amongst wealthy homeowners. And as their home prices surge, average homeowners and potential homebuyers are sidelined with real-life consequences.
As I have written before, homeownership is the number one way that people of color accumulate wealth in America. Home equity—essentially the ability to borrow using one’s house as collateral—is the way that countless numbers of blacks and Latinos have gone to college, started businesses and been kept out of poverty when emergencies arise. In fact, homeownership accounts for 1/2 of all black wealth in the United States—double that of whites.
Given the stakes, how have the wealthy seized the commanding heights of the real estate market while everyone else is stuck below? The answer lies in how we responded to the 2008 financial calamity. In the late Bush and early Obama administrations, the government’s post-crisis energy and money went to prop up Wall Street—the center of global finance—while large parts of the economy were left to fend for themselves.
By writing a blank check to Wall Street through the $800 billion TARP program, the United States ensured that the economic mechanisms that the wealthy use to get rich— bank-administered financial instruments—would continue to operate. Coupled with the fact that central banks in the United States and around the world essentially loaned trillions of dollars to global financial institutions for free, this means that the über-rich were supported even as the economic survival for everyone else was left to atrophy. In fact, nearly four million homes are either in foreclosure or a month past due even though billions in unspent TARP and other federal funds were designed to help average homeowners.
Given the indirect bailout that the U.S. taxpayer provided for the wealthy in the United States and around the world, it’s of little surprise that a driving force behind high-end home sales are the global rich. Purchases by international buyers have increased by almost 50 percent—to $92 billion in the period ending of March of this year.
Entire areas of the country have been transformed and integrated into the international real estate market in response to the demand. More than half of all global buyers in the U.S. are snapping up properties in Florida, California, Arizona and Texas.
As Steve Brown, president of the National Association of Realtors said recently, “We live in an international marketplace. So while all real estate is local that does not mean all property buyers are.” The center of gravity for the wealthiest of the world’s buyers is New York City.
In a recent New York Magazine article titled, “New York Real Estate is the New Swiss Bank Account,” Andrew Rice lays out how nearly one out of three luxury property sales there have been made to international buyers. Property seekers from Asia, Europe and Latin America have snapped up condos for as much as $90 million. Real estate agent Ryan Serhant of Bravo’s “Million Dollar Listing” recently called an apartment listing for $110 million a bargain.
With all-cash offers funneled through shadowy offshore companies, the global rich so dominate the city’s real estate market that up to one out of three apartments in New York’s wealthiest zip codes remain empty 10 months a year. As one developer put it, New York is now the safe deposit box of the international 1 percent.
The bottom line is that America’s real estate market is distorting itself in new and potentially harmful ways.
Yet the hardest thing about the entire situation is that the housing market can’t be retooled without a dramatic change in Washington where the rules of the road for housing and the way we finance it are set. And that will only happen when citizens demand it.