The COVID-19 pandemic has highlighted the importance of homeownership and its impact on wealth accumulation among American households. Home prices soared, and among homeowners with a mortgage, the average equity gains were over $26,000 in 2020, bringing the total average equity to more than $200,000 per homeowner.

While equity gains have varied significantly across the nation, in general, the availability of home equity has been the principal form of savings and household wealth for low- to moderate-income homeowners. In particular, home equity can serve as a critical financial buffer in times of economic uncertainty, such as what we experienced during the pandemic. Indeed, homeownership is a key method of accruing wealth, so differences in the attainability of homeownership directly result in differences in wealth.

Explaining the Gender Wealth Gap

Not all households in the U.S. have been able to equally participate in housing wealth accumulation. It's been well documented that there are racial, ethnic as well as gender differences in housing wealth and net worth. An analysis from the 2013 Survey of Consumer Finances showed that single women have only 32 cents for every dollar of wealth owned by single men^[1], where wealth is defined as the value of assets minus debts.

The gender wealth gap is partly a function of the long history of the gender pay gap; women today still earn 82 cents to every dollar earned by men.^[2]Still, women have made strides in recent decades. Prior to the pandemic, women's share of the labor force surpassed 50%, while 6 in 10 college graduates were women, compared to 4 in 10 in 1970.^[3]

As a result of greater financial independence, the homeownership rate among households headed by women has increased 11 percentage points between 1990 and 2019 to 61%, while the homeownership rate among those headed by men declined from 71% to 67%.^[4]

But, while female buyers have increased their presence in the home purchase market, women are still having greater challenges in reaching homeownership and seeing the same rate of return on their investment as men do.

Returns on Housing Investment Among Women Lags

Two recent studies used CoreLogic data sources to illustrate the differences. In a report titled Women and Property: State of Play^[5], the CoreLogic research group in Australia used its property database of homes across Australia and New Zealand and showed that men had exclusive ownership of 29.9% of the properties analyzed in Australia, while women had ownership of 26.2% of properties. In New Zealand, men owned 22.9% of properties compared to 20.3% of properties owned by women.

The report explains that the gap is likely driven by lower levels of income for women which means it could take longer for women to save for the average 20% down-payment and may have lower access to credit than men (because men typically have higher income).

Along the same lines, the National Association of Realtors survey data showed that among the U.S. households which reported other expenses, these added expenses had made saving for a down-payment difficult. These expenses delayed single women from saving for a down payment for two years versus one year for a single man.^[6]

And, according to the 2019 Home Mortgage Disclosure Act, women generally face higher rates of denials for mortgage applications than men do - 20% of single female applications are denied compared to 19% among single males - with single females having higher denial rates due to high debt-to-income ratios and/or a worse credit history. The latest GSEs' Annual Mortgage Report to the Federal Housing Finance Agency (FHFA) also showed that loans purchased by Fannie Mae and Freddie Mac are more likely to be for single males - 24.7% were single female while 33.8% were single male (see Figure 1).

And even when they attain homeownership, women typically garner lower returns on their home investment and hence accumulate less wealth. A more elaborate study^[7]from a group of researchers at Yale using CoreLogic U.S. county deeds and Multiple Listing Service (MLS) data found that single women see significantly lower returns from buying and selling real estate than single men, losing out on an average of $1,600 per year. The $1,600 is about half as large as the gender pay gap estimated at $2,800 per year. Nevertheless, the housing returns gap is economically large enough to explain approximately 30% of the overall gender gap in wealth accumulation at retirement.

But what is the reason for varying housing returns? According to the same study, about 45% of the gap in returns can be explained by gender differences in the location and timing of transactions. The remaining gap occurs mostly from gender differences in execution prices: women buy the same property for approximately 2% more and sell for 2% less. While men may invest more in property maintenance or purchase riskier properties with higher returns, those are less statistically significant explanations for the gap in returns.

Differences arising from location and timing of transactions highlight an interesting dilemma facing female home buyers. Women (as well as couples) might face more binding constraints in the timing of homebuying due to childcare and the school calendar, rather than misunderstanding market conditions. On the other hand, difference in execution prices highlight another interesting predicament - which is that women negotiate worse discounts relative to the asking price and list their homes at lower prices.

Worse outcomes for women may be due to a number of reasons. One reason includes expectations regarding how women should behave, as Yale research has shown that women can experience more negative outcomes by 'leaning-in' and negotiating aggressively. A second reason may reflect preferences and beliefs regarding negotiation strategy among women who may derive greater value from a fast, low-risk, or non-confrontational negotiation process. The authors suggest these patterns are consistent with a large literature documenting gender differences in the ability, style, and willingness to negotiate.

Notwithstanding the negotiation preferences, the results of the study are significant particularly in light of the disproportional impact the pandemic has had on women, and particularly as it relates to managing demands of employment and caregiving responsibilities and education of children at home during the remote school program.

Long-Term Effects of Pandemic on Wealth Gap

As is, women are more likely to be employed in industries hit hard by COVID-19 and have seen more job losses than men. According to McKinsey's The future of work after COVID-19 report^[8], the largest negative impact of the pandemic will fall on workers in food service, customer sales and service roles, as well as less-skilled office support roles - all jobs that are predominantly occupied by women. In the U.S., this could mean a loss of 4.3 million jobs in customer service and food service.

As a result of all of these dynamics, the McKinsey Women in Workplace 2020^[9]survey showed as many as two million women are contemplating downshifting their careers or leaving the workforce completely. In short, women are facing greater financial struggles which could slow or even reverse progress made by women over the last several decades, especially if job losses are permanent.

As single women are both leaving the workforce and negotiating at a 2% deficit, the implication is clear: building wealth will become much more difficult. For those who have lost a job, making loan payments on existing homes will become much more challenging, increasing their risk of delinquency. For those who are still searching for a home, a lack of income-and less effective negotiation tactics-will make it even more difficult to purchase a home in the first place. In either case, that will leave women less able to take advantage of growing home equity-and, thus, accumulating wealth. This is troubling and would leave scarring effects not only on the earnings and gender wealth differential but for U.S. economic growth for a long time.

© 2021 CoreLogic, Inc. , All rights reserved.

[1]https://static1.squarespace.com/static/5c50b84131d4df5265e7392d/t/5c54781a8165f5b8546f8a34/1549039642955/AFN_Women_and_Wealth_Brief_2015.pdf

^[2]U.S. Census Bureau, Current Population Survey, 1961 to 2020 Annual Social and Economic Supplements (CPS ASEC)

^[3]https://nces.ed.gov/programs/digest/d17/tables/dt17_318.10.asp?current=yes

^[4]More Women Have Become Homeowners and Heads of Household. Could the Pandemic Undo That Progress?, Urban Institute, March 2021

^[5]https://www.corelogic.com.au/women-and-property

^[6]2020 Downpayment Expectations & Hurdles to Homeownership, National Association of Realtors

^[7]Goldsmith-Pinkham, Paul S. and Shue, Kelly, The Gender Gap in Housing Returns (March 23, 2020). Available at SSRN: https://ssrn.com/abstract=3559892

^[8]https://www.mckinsey.com/featured-insights/future-of-work/the-future-of-work-after-covid-19

^[9]https://www.mckinsey.com/featured-insights/diversity-and-inclusion/women-in-the-workplace#