The renter-homeowner wealth gap

Summary

Marketplace Podcast Summary: The Renter-Homeowner Wealth Gap

Release Date: November 28, 2024
Host: Kai Ryssdal
Episode Title: The Renter-Homeowner Wealth Gap

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Introduction

In this episode of Marketplace, host Kai Ryssdal delves into the significant wealth disparity between renters and homeowners in the United States. Through insightful discussions with experts and real-life stories, the episode explores the underlying factors contributing to this gap, its implications on economic stability, and potential pathways for renters to build wealth.

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Understanding the Wealth Gap

Net Worth Disparities

The podcast begins by highlighting alarming statistics from the Aspen Institute, revealing that the median net worth of homeowners stands at approximately $400,000, whereas renters have a median net worth of just about $10,000 ([04:05]). Samantha Fields from Marketplace emphasizes the critical role of homeownership in wealth accumulation:

Samantha Fields ([05:24]): "Owning a home is one of the main ways people build wealth in this country, especially if they're able to buy when they're young."

Components of the Wealth Gap

While home equity significantly contributes to this disparity, it only accounts for about half of the renter-homeowner wealth gap. The remaining difference stems from higher incomes and greater investment opportunities among homeowners.

Chris Herbert ([05:56]): "People with higher incomes are more likely to become homeowners, but they're also more likely to have other kinds of investments."

Investment in Intellectual Property

The episode discusses how businesses' investments, such as AI software and other intellectual properties, play a role in economic growth. These investments contribute to GDP and reflect broader trends in business spending ([02:54] - [03:17]).

Ethan Strube ([03:17]): "The only way to know how it fits into your process is to try it and to see if it actually is successful."

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Barriers to Homeownership

Rising Home Prices

One of the primary barriers to homeownership is the substantial increase in home prices over recent years, making it difficult for individuals to enter the housing market without significant financial support or family assistance.

Samantha Fields ([06:30]): "But with the huge run up in home prices over the last few years, it's getting increasingly difficult for people to get into the housing market, especially without family money."

Limited Access to Investments

Homeowners typically have access to various investment vehicles like stocks, bonds, and 401(k)s, which renters often lack. This limited access restricts renters' ability to build wealth outside of housing.

Vanessa G. Perry ([06:17]): "Nearly 80% of homeowners have at least some of those, but less than half of renters do."

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Strategies for Renters to Build Wealth

Investing Early

Samantha Fields suggests that renters can mitigate the wealth gap by starting to invest early, even without owning a home. Opening retirement or investment accounts can provide renters with opportunities to accumulate wealth over time.

Samantha Fields ([07:00]): "One of the easiest ways is just by opening a retirement account or an investment account."

Financial Education and Tools

Educational programs and accessible financial tools can empower renters to make informed investment decisions, aiding in wealth building despite the lack of home equity.

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Intergenerational Wealth and Moving Trends

Beyond the immediate renter-homeowner dynamics, the episode explores how intergenerational wealth and family dynamics influence housing decisions. Heather Gillers from The Wall Street Journal discusses the trend of baby-boomer grandparents moving to the southern U.S. to be closer to their grandchildren, utilizing their accumulated wealth to relocate.

Heather Gillers ([08:15]): "They have paid off or nearly paid off homes. So they're sort of cashing out and moving south where they don't have to worry about high interest rates because they have this cash from selling their homes."

Economic Impact on Destination Cities

The influx of affluent older adults into southern cities like Georgetown, Texas, positively impacts local economies through increased spending and property ownership, while not significantly burdening public services like schools.

Heather Gillers ([10:44]): "People 55 and over make up for 45% of personal spending in the US so they're generally like a, a credit positive."

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Broader Economic Context

Throughout the episode, Marketplace weaves in broader economic indicators that provide context to the renter-homeowner wealth gap, such as consumer and business spending, GDP growth, and inflation rates. These elements underline the importance of understanding the wealth gap within the larger economic landscape.

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Conclusion

The episode concludes by reinforcing the critical need to address the renter-homeowner wealth gap as a central issue for economic equality and stability. By highlighting both the challenges renters face and the strategies available to them, Marketplace underscores the importance of policy interventions and personal financial planning in bridging this divide.

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Notable Quotes with Timestamps

• Samantha Fields ([05:24]): "Owning a home is one of the main ways people build wealth in this country, especially if they're able to buy when they're young."

• Chris Herbert ([05:56]): "People with higher incomes are more likely to become homeowners, but they're also more likely to have other kinds of investments."

• Ethan Strube ([03:17]): "The only way to know how it fits into your process is to try it and to see if it actually is successful."

• Vanessa G. Perry ([06:17]): "Nearly 80% of homeowners have at least some of those, but less than half of renters do."

• Samantha Fields ([07:00]): "One of the easiest ways is just by opening a retirement account or an investment account."

• Heather Gillers ([08:15]): "They have paid off or nearly paid off homes. So they're sort of cashing out and moving south where they don't have to worry about high interest rates because they have this cash from selling their homes."

• Heather Gillers ([10:44]): "People 55 and over make up for 45% of personal spending in the US so they're generally like a, a credit positive."

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Additional Segments

While the primary focus was on the renter-homeowner wealth gap, the episode also touched upon related topics such as:

• Business Spending on Durable Goods: Discussing how companies invest in long-term assets like solar panels and AI software, contributing to GDP growth ([02:09] - [03:45]).

• Economic Indicators: Updates on stock market performance, holiday sales projections, and the impact of returns on retailers ([13:02] - [15:48]).

• Memory Palace Podcast Feature: A segment highlighting Nate DiMeo's Memory Palace podcast and his new book, exploring historical narratives and personal family stories ([16:59] - [25:02]).

• Chocolate Market Update: Insights into rising chocolate prices due to climate issues and preparations by local businesses for the holiday season ([25:02] - [27:39]).

• Food Waste Statistics: A final note on the substantial amount of food waste during Thanksgiving, emphasizing economic and environmental concerns ([27:39] - [29:20]).

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This comprehensive summary encapsulates the key discussions and insights from the Marketplace episode on the renter-homeowner wealth gap, providing listeners with a clear understanding of the topic and its broader economic implications.

Transcript

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[Amy Scott]

Bond the macro economy still looking strong? We'll look at the micro too. From American Public Media, this is Marketplace in Baltimore. I'm Amy Scott in for Kai rysdal. It's Wednesday, November 27th. Good to have you with us. Consumer spending gets a lot of attention this week, what with Black Friday and all. But businesses buy stuff too, and today the Commerce Department is out with some new data on that spending. New orders for durable goods products meant to last at least three years increased slightly2.10% in October, and the department's Bureau of Economic Analysis is out with a revised estimate of third quarter gdp. The headline number remains the same. The economy grew at an annual rate of 2.8%, but one component component that was revised upwards, what the BEA calls non residential fixed investment, another measure of business spending. Marketplace's Stephanie Hughes has the details.

[William Martin Jr.]

The electrical contractor Kelso Burnett is based in Chicago, and in the last five years the company's gotten more business installing solar panels in Illinois.

[Assured Guaranty Representative]

As you can imagine, out in the middle of the cornfields, you know they're.

[Amy Scott]

Buying up some property and they're building the solar farms.

[William Martin Jr.]

William Martin Jr. Is a branch manager for the company. To build those solar farms, his company has to install metal pilings that support the panels. Kelso Burnett had been renting equipment to do the work, but earlier this year it decided to spend half a million dollars on its own pile drivers.

[Amy Scott]

We see a big market in the solar field area, so dove right in.

[Assured Guaranty Representative]

And bought two machines.

[William Martin Jr.]

His company also just bought some AI software to see if it speeds up the process of estimating the number of electrical outlets a building might need that could allow them to bid on more projects.

[Assured Guaranty Representative]

It takes a little bit of time.

[Amy Scott]

For everybody to kind of understand this.

[Assured Guaranty Representative]

New program, if we like it, if.

[Amy Scott]

It'S going to work for us.

[William Martin Jr.]

The software purchase is considered an investment in intellectual property, which is a growing part of GDP. In the third quarter, businesses spent more than $1.5 trillion in IP. Economics professor Ethan Strube at Carleton College says a lot of companies are experimenting with AI these days.

[Ethan Strube]

The only way to know how it fits into your process is to try it and to see if it actually is successful.

[William Martin Jr.]

Companies also spent more on transportation equipment. In October, new orders were up 0.5% from the month before, according to the Durable Goods Report. Ryan Young, a senior economist with the Competitive Enterprise Institute, says that's a sign that automakers, for example, are stocking up.

[Ethan Strube]

They're buying now while it's cheap, anticipating that prices might go up later if there are new tariffs or other policies.

[William Martin Jr.]

Remember that Durable Goods Report is from October, so the companies buying didn't know yet what would happen with the election, Young says. They were preparing regardless, he says now that they know the outcome, companies that have been eyeing a pile driver say for a while might be more likely to go ahead and buy it. I'm Stephanie Hughes for Marketplace.

[Amy Scott]

One more item from the Bureau of Economic Analysis. The PCE price Index, the Fed's preferred measure of inflation, rose at an annual rate of 2.3% in October, so still a bit higher than the 2% the Fed is aiming for on Wall Street, a dip before the holiday. We'll have the details when we do the numbers. Quick update on the housing market from the national association of Realtors, which says pending sales of existing homes rose 2% last month. We hear all the time that homeownership is the main way people build wealth in this country. And of course, it takes some wealth to even become a homeowner. But some new data on the wealth gap between those who do own and those who rent is still pretty striking. The Aspen Institute finds that the media the median net worth of a homeowner is about $400,000. A renter's just about 10,000 marketplaces. Samantha Fields has more.

[Samantha Fields]

Owning a home is one of the main ways people build wealth in this country, especially if they're able to buy when they're young. Chris Herbert at the Joint center for Housing Studies at Harvard says if you can buy a house in your 20s.

[Chris Herbert]

Or early 30s and pay off that.

[Assured Guaranty Representative]

30 year mortgage over time, you're going.

[Ethan Strube]

To build wealth much earlier and accumulate more over your lifetime.

[Samantha Fields]

That's a big part of this story of homeowners having more wealth than renters. But it's not the whole story. Home equity only accounts for about half of the renter homeowner wealth gap, according to the Aspen Institute, people with higher.

[Chris Herbert]

Incomes are more likely to become homeowners, but they're also more likely to have.

[Ethan Strube]

Other kinds of investments.

[Samantha Fields]

Vanessa G. Perry at George Washington University says those investments include stocks, bonds and 401 s. Nearly 80% of homeowners have at least some of those, but less than half of renters do.

[Chris Herbert]

There's a sort of ripple effect when you have home equity and you have.

[Ethan Strube]

The opportunity to stabilize your housing expenses. That affords a household more opportunities to.

[Samantha Fields]

Gain more wealth by paying down debt and putting money into savings or retirement. But with the huge run up in home prices over the last few years, it's getting increasingly difficult for people to get into the housing market, especially without family money.

[Amy Scott]

So that does make it even more important for us to think about if you're a renter, how can you build that wealth as early as possible in your Life?

[Samantha Fields]

Katherine Lucas McKay is with the Aspen Institute's Financial Security Program.

[Amy Scott]

One of the easiest ways is just.

[Samantha Fields]

By opening a retirement account or an investment account. And in recent years, McKay says that's gotten a lot easier to do on your own. I'm Samantha Fields for Marketplace.

[Amy Scott]

We just heard from Sam about how hard it is to get a foothold in the housing market today. Now a story about folks a little further along in their housing and life journeys. Southern climbs have long been a magnet for older Americans. Just think of all the retirement and over 55 communities in the Sun Belt. But warm weather and golf aren't the only attractions. Many baby boomers are moving to be closer to their grandchildren. Heather Gillers is a reporter for the Wall Street Journal where she wrote about these so called baby chasers. Heather, welcome to the program.

[Heather Gillers]

Hi, thanks for having me.

[Amy Scott]

So who are these baby chasing grandparents and where are they moving?

[Heather Gillers]

So they are generally sort of the baby boomer generation and they're mostly moving south. And this is sort of the intersection of a bunch of different population trends that have been building. One is that we've seen sort of a 10 year growth in population of young families in the southern U.S. texas, Florida, Carolinas and then, you know, obviously these are traditionally places where older Americans have retired to warm weather, golf. And now there's a new attraction which is that a lot of their grandbabies live there at the same time. The baby boomers are a generation that have accumulated a lot of wealth. Many of them, you know, have retirement portfolios that grew over a 10 year bull market. They have paid off or nearly paid off homes. So they're sort of cashing out and moving south where, you know, they don't have to worry about high interest rates because they have this cash from selling their homes. They can buy a place and be near their grandkids.

[Amy Scott]

I wanted to talk about some of the data behind this trend story. How do we know? I mean, obviously there are a lot of reasons people move. And you mentioned the south has been a destination for retirees for a long time. How do we know that a lot of this is motivated by being close to the grandkids?

[Heather Gillers]

There aren't census takers going from house to house saying to grandmas, did you move here to come see your grandbaby? But we do have a lot of information from the real estate industry and a little bit of sort of like demographic data that sort of bears this out. So the national association of Realtors surveys homebuyers and the age of repeat homebuyers is at a 40 year high right now. And the biggest reason that they cite for selling their homes is moving close to friends and family. And then another trend in home building that kind of bears this out is that 55 and over communities within all ages communities have become very popular. So, so there's a clear trend of like older Americans wanting to live close at least to somebody's grandchildren and potentially to their own families.

[Amy Scott]

Right. Or maybe their own children, even if they don't themselves have kids.

[Heather Gillers]

Yeah.

[Amy Scott]

Talk a little bit about the economic impact of this, this group on the cities where they're moving. As you said, these are folks that might have some accumulated wealth, a little more flexibility.

[Heather Gillers]

Yes, yes. So the fastest growing city in the U.S. right now, the fastest growing city, over 50,000 is Georgetown, Texas. And about a fifth of its population lives in one giant retirement community. And it's just been great for the city. I mean, this year it got a triple A bond rating. I mean, these are people who, they don't send their kids to school. So that's a costly service that they don't make use of. They pay taxes, they own property, they have a lot of spending power. Like a statistic I like to cite is that people 55 and over make up for 45% of personal spending in the US so they're generally like a, a credit positive, as a bond rating agency would say. You know, they do use ambulance services. But a lot of the other sort of services that cities spend a lot of money on. This population is not going to be a big user of those services.

[Amy Scott]

Well, where do you see this going? Is there any way to know how lasting this trend might be?

[Heather Gillers]

You know, another really interesting piece of this is that eventually someone like that may be doing a lot of childcare. But as kids need less childcare, these grandparents are also getting older and the US Has a real shortage of care workers for older people. So as these grandparents age and the grandchildren no longer need care, you know, they may find that they are happy to be close to their children because they themselves need help.

[Amy Scott]

Yeah. All right. Heather Gillis wrote about baby chasing Grandparents Making Moves for the Wall Street Journal. Thank you so much.

[Heather Gillers]

Thank.

[Chris Herbert]

Coming up, the cost of chocolate has gone up over the past year or year and a half.

[Amy Scott]

Sigh. But first, let's do the numbers. The Dow Jones Industrial Average fell 138 points 3.10percent to finish at 44,006. The NASDAQ subtracted 115.6 10% to close at 19,060 and the S&P 500 lost 22 points just shy of 4.10percent to end at 59.98. Holiday sales are expected to top a trillion dollars in the US this year and of that, about 160 billion worth, or 16% is expected to be returned, according to a new analysis from cbre. Checking in on some online retailers who have to deal with those returns, Amazon.com descended 1%, Walmart added 6. 10%, Target pocketed 2 and 8. 10% and Etsy slid 9. 10%. You're listening to Marketplace.

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[Amy Scott]

This is Marketplace. I'm Amy Scott. We often talk about history on this show as context for what's going on today. But there are so many stories that slip through the cracks, missing out on their due. Which is why I'm a big fan of the Memory Palace, a podcast launched in 2008 by Nate DeMaio, who I should say is a Marketplace alum. The Memory palace features unexpected stories of people throughout history, both the not so famous and the famous, like Guillermo Marconi, known as the father of the radio.

[Ethan Strube]

Marconi became convinced that sound never dies, that sound waves once emitted from a radio from the vibrating strings of a Stradivarius, from whispering lovers or a baby discovering how to make a ba or g sound for the first time lived on forever, flowing permanently, but growing weaker and weaker with each moment. It just hadn't yet managed to build a radio powerful enough to tune in The Signal.

[Amy Scott]

Nate DiMeo is now out with a book based on the podcast called the Memory True Short Stories of the Past. Nate, great to talk with you again.

[Ethan Strube]

Oh, it's the best, Amy. So happy to be here.

[Amy Scott]

So you've had this successful, beloved podcast for more than 15 years now. Why write A book.

[Ethan Strube]

I have always sort of wanted to do a book. Not only is it helpful to have a book as a business, and not only is it a good thing to do, boy, do I love books. And I would think about the books that I had as a kid, these sort of collections of short pieces. Like I would stay home from school sick and I would pick up for the 12th time some collection of Ripley's Believe it or not stories. Or I would look again for the thousandth time at where the Sidewalk Ends, the collection of short poetry. And I always wanted to collect stories from the Memory palace, sort of old and new. And that might be one of those books that I had as a kid and loved as a kid that don't really exist for adults and make one for adults about adult concerns.

[Amy Scott]

Hmm. The name Memory Palace, I assume, comes from a technique that people use to remember stuff.

[Ethan Strube]

Yes.

[Amy Scott]

Can you talk about that and how it inspired you?

[Ethan Strube]

Sure. I mean, you know, I think I believe it was Cicero. It might not be. Despite the fact what I do for a living, I often, you know, I get the facts right on air, but I often get the facts wrong off air. But yeah, so back in the day, you know, he came up with this technique that people would, you know, walk around a space that they knew in their imaginations, like maybe it was their childhood home, and people would remember the speech that they were trying to say and remember fourscore and seven years ago today. And they would do that while looking, while remembering, you know, the entryway to their parents house. I like the notion of that we're creating this imaginary space again where, you know, by telling the story of Carlo Wallenda, the last of the original flying Wallendas, who died not too long ago. Thank you. As you know, from natural causes, which is an incredible achievement in her family of people who died, you know, usually in pain, on their backs, on the floor underneath some tightrope.

[Amy Scott]

Spectacular fashion.

[Ethan Strube]

Yes, exactly. Like, you know, that when I tell that story, and even when I just speak it right now and give you that image of a failed acrobat and one who happened to make Live a Long Life, it kind of does hang with you in your imagination. And the Memory palace felt like an appropriate name in that way.

[Amy Scott]

There are so many beautiful stories in this book. Many of them existed in audio form on your podcast, but you also turn the lens on yourself and your own family for several chapters so you find this picture of your grandparents at the beach that complicates this story that you had been telling yourself about them. Can you talk about that and just how it kind of informed your thinking about history?

[Ethan Strube]

Yeah, absolutely.

[Amy Scott]

Large.

[Ethan Strube]

Sure. You know, and living in that house, I would was exposed to all of these sort of different artifacts of my own family. And there was this one photograph that everybody in the family had of my parents, sort of my grandparents, you know, young and attractive in the early 1940s, clearly in love, you know, with their arms around each other on the beach. And this was a story that. This was a day that I had heard about from my grandmother a million times. She would talk about the day that she went to the beach with my grandfather and they rode back and sent Studebaker and they piled into the back and she had to sit in his lap. And as they were sitting there, the charge between them, she realized that she was in love. And I'd heard this story forever. And here was this incredible picture. But then I also found this other photograph. And in this photograph, they are not sort of intertwined. They are not beaming with love. They are kind of sitting next to each other in what almost feels like discomfort. But the implications of these two pictures were remarkable. That maybe the picture where they're lovey dovey was the second picture. And maybe the photographer. And I'd never even thought about who this photographer would be. They seem uncomfortable. He said, hey, guys, I know what's going on with you two. Like, who are you trying to kid? Or maybe he's like, come on, let's come on, give me some action here. I don't know what it was, but there's something to me about that second photograph that speaks to all those in between moments, all the life we live, between the stories we tell ourselves about our lives. That is where life takes place. And that is where I like the memory palace to live.

[Amy Scott]

So back to the podcast where this all started. The economics of the industry are really difficult right now, especially when it comes to ad sales. But you've been keeping this going now more than 15 years. How are you staying afloat? And are you optimistic that you can keep doing what you love to do and have done so well?

[Ethan Strube]

The answer kind of is it has sort of ever been thus. Right. The way that I was doing this thing and the way that it was, you know, sort of particularly sincere and particularly idiosyncratic. The stories themselves, in their idiosyncrasy and in their sometimes strangeness were drawing people to it. And as the podcast serial suddenly sort of like lifted all boats, and if you happened to be in the water at the time, there was suddenly a way to, you know, to draw advertisers to you. And there were always ways, like throughout that I could have, like, you know, I could have stepped it up in a certain way and maybe like, produce them more frequently. But I realized in producing them more frequently, they would not be as good. And that is, of course, the way that every creative person in every sort of creative industry is wondering what, you know, they're going to do next. Like, as we expand, will the service that we provided. And in my part, that's in, you know, that service is, it is writing tiny little, you know, deeply earnest stories focused on wonder about the past. Like, that is a weird product to sell.

[Amy Scott]

I wouldn't call it ridiculous.

[Ethan Strube]

Okay.

[Amy Scott]

It's very, very important and moving. Well, thank you very much, Nate DiMeo, creator and host of the Memory palace podcast and now author of the book by the same name. Nate, so great to talk to you. Congratulations and thanks for joining us.

[Ethan Strube]

Couldn't be happier to be here.

[Amy Scott]

Okay, now to Chocolate shop owners like Kristen Talheimer Bingham of Dean's Suites in Portland, Maine, are gearing up for the holiday rush. We checked in to see how she's doing.

[Chris Herbert]

The season is upon us and we are very happily busy. Everyone is working extra hours, starting early and staying late. Our two stores are bustling. Our phone is ringing. We've been working the past six months to make sure that these holiday weeks are the best they can possibly be. And every year we challenge ourselves to do the holidays better. I think a lot of people are already aware that the cost of chocolate has gone up over the past year or year and a half due to some pretty tough climate issues that have affected the cocoa growing regions. We've watched as prices of chocolate and cocoa have gone up at least three separate times in the past year, totaling about a 20% increase in the cost of dark chocolate and a 40% increase in the cost of milk and white chocolate in our store. And in conversation with customers, I've been watching for signs to see whether spending is up or down and whether people are being careful in their purchases or shopping without a lot of worry. And I'm happy to say that at least in our small chocolate world, I see signs of a good season ahead. I'd like to think that every year we as a team get a little smarter about how to prep for the holidays and especially how to build the inventory that will get us through from Thanksgiving to the end of December. And as much as we plan and look at our numbers and anticipate, there are always going to be surprises. Surprise orders are really the best because if we've planned well and built our inventory, we're able to jump on those surprises and get the chocolate out the door quickly. And that's what builds the business not only for this year, but hopefully also for the coming years. So even though we've been working for months to get ready for these next few weeks, it's actually still early days for us. But then after Thanksgiving, everything turns up a notch. A big notch. So our test each year is to keep our energy up, to take breaks when we need to, and to work through this holiday season.

[Amy Scott]

Kristin Thallheimer Bingham of Dean's Suites in Portland, Maine, this final note on the way out today, something to consider as you load up your dinner plate tomorrow. The nonprofit refed estimates some 316 million pounds of food, more than half a billion dollars worth, will go to waste this Thanksgiving holiday, including the equivalent of more than 8 million turkeys. And I didn't realize so many people don't even like turkey until I read this quote from journalist Brian McManus in Vice who wrote, it is almost without fail a dried out, depressing hunk of sun baked paper mache, a jaw tiringly chewy, unsatisfying and depressingly bland workout. Whatever your feelings about turkey, that's some juicy writing. Our media production team includes Brian Allison, Jake Cherry, Jessen Dueler, Drew Jostad, Gary O'Keefe, Charlton Thorpe, Juan Carlos Tirado, and Becca Weinman. Jeff Peters is the manager of media production and I'm Amy Scott. We'll be back tomorrow. This is apm.

[Ethan Strube]

Hey, it's Kai. My minivan and I, as I've said on the radio, have logged a lot of miles with Marketplace. Luckily, it's still running pretty well. But if your car doesn't drive as well as it used to, listen up, it can still help drive Marketplace when you donate your old car or truck. We'll use the proceeds to support the great programs you hear every day. Start your vehicle [e-mail] vehicle.