Inequality could be good for housing markets.
A new analysis from LendingTree, an online loan marketplace, examined the nation’s 50 largest metropolitan areas to determine how equal—or unequal—their housing markets are. And as it turns out, the Midwest and Deep South are bastions of home price inequality.
Detroit had the highest “GINI Coefficient” of all the housing markets studied. The GINI Coefficient is a popular measurement to determine the level of economic inequality on a scale from 0 to 1, with 1 being completely unequal.
In Detroit, homes in the 95th percentile in terms of value were worth $431,000 on average, which is 13.5 times more expensive than homes in the 5th percentile ($32,000). Not far behind Detroit were Birmingham, Ala. (11.5 times more expensive) and Indianapolis (10.5 times).
Rank City Gini Coefficient 95th percentile home price 5th percentile home price Ratio (95th/5th) 1 Detroit 0.446 $431,000 $32,000 13.5 2 Birmingham, Ala. 0.392 $518,000 $45,000 11.5 3 Indianapolis 0.385 $445,000 $44,000 10.1 4 St. Louis 0.379 $493,000 $43,000 11.5 5 Cleveland 0.374 $401,000 $41,000 9.8 6 Memphis, Tenn. 0.37 $423,000 $39,000 10.8 7 Pittsburgh 0.367 $471,000 $53,000 8.9 8 Chicago 0.355 $668,000 $68,000 9.8 9 Kansas City, Mo. 0.352 $398,000 $40,000 10 10 Charlotte, N.C. 0.351 $653,000 $80,000 8.2Having an unequal housing market sounds bad.
However, home price inequality isn’t necessarily a reflection of a market being unaffordable. In fact, it can signal the exact opposite. “Cities with more home value inequality have a wider distribution of home values, which means that families earning lower incomes may still have the opportunity to access homeownership in these cities,” LendingTree chief economist Tendayi Kapfidze, wrote in the report.
Moreover, higher prices at the top end of the market could be a sign that a market’s economy is “vibrant enough to support higher earning jobs as well,” Kapfidze said.
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And more equal housing markets are generally less affordable for low-income residents. Take San Jose: The Silicon Valley city had the highest 95th percentile home value of all the cities analyzed at nearly $2.7 million, but was also the ninth most equal housing market in the country.
Indeed, the 5th percentile home value in the 10 most unequal housing markets never exceeded $100,000. But in the least unequal markets, it never dropped below that figure.
While low home prices make homeownership more affordable for a wider swath of consumers, it can also point to other issues in a housing market. In some parts of the country, low home prices are a remnant of racist housing policies that disadvantaged people of color. Home prices in historically black neighborhoods still lag those of areas that were long populated by white residents 50 years after racist lending practices were outlawed by the Fair Housing Act.
And for homeowners in these cheaper housing markets, the lower rate of home price growth has contributed to the wealth gap that exists between white and black families, research has shown.
