Real Estate Helped Drive Wealth Gains during the Pandemic

How did the performance of different assets (what households own) influence racial wealth outcomes during the COVID-19 pandemic?

Despite recent wealth gains during the pandemic, the average Black family owned about 24 cents for every $1 of white family wealth as of the first quarter of 2023.The data set for this article is the Federal Reserve Board’s Distributional Financial Accounts. Within these data, households are grouped based on the primary race/ethnicity of the survey respondent. Groups in the data are mutually exclusive. The question on race includes white, Black/African American, and Hispanic/Latino as options. The remainder of respondents are grouped into a diverse “other or multiple races” group, which includes Asians, American Indians, Alaska Natives, Native Hawaiians, Pacific Islanders, other races and multiple racial identifications. The diversity of this combined category makes meaningful interpretation difficult, and it is therefore not a focus in this article. Similarly, the average Hispanic family owned about 23 cents for every $1.

At the Institute for Economic Equity, we are interested in wealth gaps between demographic groups. That is because wealth (defined as net worth) is important for both a family’s short-term stability and long-term economic mobility. Knowing the current state of wealth inequality sheds light on what is needed to pursue a more equitable economy where everyone can thrive. Our timely estimates of wealth gaps and other outcomes are available at the State of U.S. Wealth Inequality.The State of U.S. Wealth Inequality replaces the Real State of Family Wealth, a resource launched in 2020.

Racial Wealth Gap Narrows Slightly

The racial wealth gap has been relatively stable over time. We found that the racial wealth gap narrowed slightly during the pandemic but remained wide.

Many financial aspects changed over this relatively short period of time. Inflation rose rapidly, the stock market had large swings and house prices climbed. Asset categories like investments and housing play a large role in overall wealth trends. In this blog post, we document how the returns associated with these and other assets changed during the COVID-19 recession and recovery.

Wealth Fluctuates during Pandemic but Grows Overall

Between the fourth quarter of 2019 and the first quarter of 2023, the inflation-adjusted wealth of all three groups grew:

• Average Black household wealth increased by 11.3% to $308,000.
• Average Hispanic household wealth increased by 26.3% to $298,000.
• Average white household wealth increased by 6.2% to $1,268,000.

During the COVID-19 recession, average Black and white wealth dropped briefly but quickly recovered and grew substantially through 2021. Some of those gains were reversed in 2022 as many financial supports provided during the pandemic expired and asset markets became more volatile. As of the first quarter of 2023, the decline in average white wealth had leveled off, while average Black and Hispanic wealth continued to decline. Despite some erosion of gains, wealth levels for these racial and ethnic groups remained higher than they were prior to the pandemic.

The Type of Assets Spurring Overall Wealth Gains

Wealth, or net worth, is made up of assets less liabilities (what households owe). Assets can be financial, including savings and checking account balances, stocks, retirement accounts or other less common types (e.g., trusts). Alternatively, they might be nonfinancial assets, such as real estate, vehicles or the equity in a closely held business. Liabilities include consumer debts like mortgages or student and auto loans.

From the next three figures below, we can see that the real value of nonfinancial assets grew substantially between the end of 2019 and early in 2023. In contrast, financial assets had not done particularly well after a steep decline in real value during 2022. The value of liabilities was roughly the same as it was before the pandemic for the three groups.

Changes in the Real Value of Assets and Liabilities for the Average Black Household

Changes in the Real Value of Assets and Liabilities for the Average Hispanic Household

Changes in the Real Value of Assets and Liabilities for the Average White Household

SOURCES: Federal Reserve Board’s Distributional Financial Accounts and authors’ calculations.

NOTES: The chart shows the percent changes in the average real value of nonfinancial and financial assets and liabilities relative to their respective values as of the fourth quarter of 2019, by race or ethnicity. The values were adjusted for inflation using the consumer price index.

Real Estate Drove Most Wealth Gains for Black and Hispanic Households

Breaking asset categories down further reveals real estate was driving most of the growth in overall wealth gains. For example, average real estate holdings grew by 30%, 35% and 13% for Black, Hispanic and white households, respectively, between the end of 2019 and the first quarter of 2023.Note that these gains can be driven both by increasing rates of real estate ownership as well as appreciation of existing real estate assets. Given that we observe average holdings for the group (rather than the holdings of each individual household), we cannot disentangle the two factors in these data. Net gains persisted despite declines in the average value of real estate holdings starting in the third quarter of 2022.

If real estate growth was so strong, why were overall wealth increases more muted? It’s because families, and racial groups more broadly, have varied asset portfolios. This means they own different types of assets. Generally, diversification is a good thing; if the value of one type of asset goes down, the others may hold steady or increase, offering more stable returns. But not everyone has equal access to these different assets, which leads to some groups having more concentration in certain types of assets.

The figure below plots how average values for three different asset types changed between the end of 2019 and the first quarter of 2023, and how heavily invested each demographic group was in that type of asset at the end of 2019. Hispanic households, for example, were the most heavily invested in real estate of these three groups. At the end of 2019, 39.5% of Hispanic assets were in this category. The largest category for white households was stocks and mutual fund shares (25.1%), and for Black households it was retirement accounts (39.5%). Real estate grew the most for each group, and because Hispanic households were so heavily invested in this type of asset, their overall wealth grew substantially as well.

Real Estate Drove Large Wealth Gains for the Black, Hispanic and White Households

SOURCES: Federal Reserve Board’s Distributional Financial Accounts and authors’ calculations.

NOTES: This figure shows the share of total assets that were held in three types of assets: equities and mutual funds, retirement accounts (defined benefit and defined contribution accounts) and real estate. Collectively, these three types of assets account for a majority of total assets for each demographic group, although the share held in each varied (as indicated by position along the y-axis). The position along the x-axis shows how these assets changed in value between the fourth quarter of 2019 and the first quarter of 2023. Shapes to the left of the dotted vertical line indicate a decline in real value. The values were adjusted for inflation using the consumer price index.

These gains notwithstanding, it’s important to keep the racial wealth gap in mind to put this growth into context. The average white family had $338,000 in real estate assets as of the first quarter of 2023. In contrast, the average Black and Hispanic families had $122,000 and $174,000, respectively. These totals partly reflected lower homeownership rates among Black and Hispanic families relative to their white peers. As of 2019, 44% and 47.3% of Black and Hispanic households, respectively, were homeowners.Sourced from the Federal Reserve Board’s Survey of Consumer Finances. In contrast, 72.8% of white households were homeowners.

Separately, the average value of retirement accounts fell during the pandemic for all groups. This was relatively more impactful for Black wealth, as 39.5% of Black wealth was concentrated in this type of asset. The decline was driven by both negative swings in market value for defined contribution accounts (e.g., 401(k)s) and inflation eroding the value of defined benefit accounts (commonly known as pensions). The falling value trend is problematic, as both types of accounts are important components of financial security in retirement.

Will the Gains in Real Estate Erode?

The recent decline in nonfinancial assets shown in the first three figures reflects that the value of average real estate holdings had notably weakened as of the first quarter of 2023. It’s unclear if housing values will continue to fall or stabilize at first-quarter levels. Increasing interest rates have made some potential sellers hold off on listing their houses, constraining supply. Concurrently, higher interest rates have also made mortgage payments more expensive, putting financial pressure on would-be buyers.

As we have shown, this uncertainty is especially impactful for Hispanic families as a group, because 44.8% of their collective asset value was in real estate as of the first quarter of 2023. Changes in real estate values, even minor ones, will have a greater impact on Hispanic wealth relative to that of other groups.

Given the challenges in the housing market and other economic headwinds (e.g., financial market volatility, inflation), its less likely that wealth will grow as it had during the past few years. At the Institute for Economic Equity, we will continue to monitor these trends and provide timely updates through the State of U.S. Wealth Inequality.

Notes

1. The data set for this article is the Federal Reserve Board’s Distributional Financial Accounts. Within these data, households are grouped based on the primary race/ethnicity of the survey respondent. Groups in the data are mutually exclusive. The question on race includes white, Black/African American, and Hispanic/Latino as options. The remainder of respondents are grouped into a diverse “other or multiple races” group, which includes Asians, American Indians, Alaska Natives, Native Hawaiians, Pacific Islanders, other races and multiple racial identifications. The diversity of this combined category makes meaningful interpretation difficult, and it is therefore not a focus in this article.
2. The State of U.S. Wealth Inequality replaces the Real State of Family Wealth, a resource launched in 2020.
3. Note that these gains can be driven both by increasing rates of real estate ownership as well as appreciation of existing real estate assets. Given that we observe average holdings for the group (rather than the holdings of each individual household), we cannot disentangle the two factors in these data.
4. Sourced from the Federal Reserve Board’s Survey of Consumer Finances.