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Redfin Report: Homes Cost 38% More in Neighborhoods That Offer the Best Shot at Upward Mobility

(NASDAQ: RDFN) ? The typical home that sold in a high-opportunity U.S. neighborhood in 2022 went for $470,000, 38.2% more than the typical home that sold in a low-opportunity neighborhood, which went for $340,000. That's according to a new report from Redfin (redfin.com), the technology-powered real estate brokerage.

The report is based on an analysis of home sales in 100 of the most populous U.S. metropolitan areas. Redfin sorted each neighborhood into one of three tiers?low opportunity, intermediate opportunity and high opportunity. A high-opportunity neighborhood is defined as one where children who grew up in low-earning households went on to become higher earning adults than the typical person who grew up in their metro at the same time.

People in high-opportunity neighborhoods are more likely than those in low-opportunity neighborhoods to live among highly rated schools, professional networking opportunities, large numbers of college graduates and low rates of poverty and crime. High-opportunity neighborhoods also have larger concentrations of two-parent households, along with high levels of income inequality and segregation?meaning they tend to skew wealthy and white. The methodology Redfin used to measure opportunity was developed by Harvard University researcher Raj Chetty.

"It's prohibitively expensive for many families?particularly those of color?to access the neighborhoods that offer children the best shot at financial success," said Redfin Deputy Chief Economist Taylor Marr. "Where you grow up lays the groundwork for your future. Kids raised in low-opportunity neighborhoods have a lower chance of getting a good education and well-paying job, growing a robust professional network, building wealth through home equity and staying out of harm's way. That can perpetuate a cycle of segregation and wealth inequality that can last for generations, with their children and grandchildren often grappling with the same disadvantages."

The price premium of high-opportunity neighborhoods has shrunk over time, but that's not because these areas have become more affordable. It's because many low-opportunity neighborhoods have gentrified and become less affordable.

High-Opportunity Neighborhoods Have More Homes for Sale, But Those Homes Are Less Affordable?Especially for Families of Color

The good news is the lion's share (39.5%) of U.S. homes for sale are in high-opportunity neighborhoods. The bad news is high-opportunity neighborhoods are rarely affordable. Just 13% of homes for sale in high-opportunity neighborhoods last year were affordable on their metro area's median income, compared with 31.7% in low-opportunity neighborhoods. Affordability has fallen across the board due to surging home prices; the median sale price in high-opportunity neighborhoods has grown 100% since 2012, while the median sale price in low-opportunity neighborhoods has jumped 174%.

White families have an easier time gaining access to these areas than many families of color. Just 4.2% of homes for sale in high-opportunity neighborhoods were affordable for the typical Black household in 2022. The share was nearly five times higher (19.1%) for the typical white household.

On average, just over one-third (35.2%) of residents in the high-opportunity neighborhoods Redfin analyzed are nonwhite, compared with nearly two-thirds (61.4%) in low-opportunity neighborhoods.

The Price Premium for Opportunity Is Highest in Segregated Midwestern and Southern Metros

In Detroit, the median home sale price in high-opportunity neighborhoods was $240,000 in 2022. That's 269% higher than the $65,00 median sale price in Detroit's low-opportunity neighborhoods?the largest premium of the metros Redfin analyzed. Next came Memphis, TN, where high-opportunity neighborhoods held a 187% premium. Rounding out the top five are Akron, OH (169%), Milwaukee (149%) and Birmingham, AL (143%).

Many of the metros where high-opportunity neighborhoods carry hefty home-price premiums grapple with relatively high levels of segregation. Milwaukee and Detroit both rank among the five most segregated metros based on 2020 Census data; Memphis and Birmingham are also near the top of the list.

New York was the only metro where it was less expensive (by 6.7%) to live in a high-opportunity neighborhood. The median sale price of high-opportunity neighborhoods in New York was $695,000, compared with $745,000 in low-opportunity neighborhoods.

In Detroit, High-Opportunity Neighborhoods Are Nearly Four Times More Expensive and Predominantly White

Detroit's high-opportunity neighborhoods overlap with the metro's predominantly white, suburban areas, while low-opportunity neighborhoods overlap with predominantly nonwhite parts of the urban core.

Plymouth, a city of about 10,000 located a short drive west of Detroit, is one example of a high-opportunity neighborhood in the Detroit metro area.

"Plymouth screams suburbia. It has a quaint little downtown, cute restaurants and coffee shops, highly-rated high schools and an ice-sculpture festival every winter," said Kate McNeill, Redfin's market manager in Detroit. "It stands in contrast to some neighborhoods closer to downtown, where there has been less development despite increasing home prices in recent years."

McNeill continued: "Take Highland Park, a majority Black area that has seen its population decline by 24% in the past decade or so. Much of that is due to disinvestment and a lack of city services. When you walk around Highland Park, many homes have been boarded up and abandoned."

Opportunities for Change: Provide Home-Search Assistance, Subsidize Affordable Housing and Reform Zoning Laws

While low-income families are often concentrated in low-opportunity neighborhoods, research has shown this is rarely a function of choice. Oftentimes, they end up in low-opportunity areas because there are barriers in the home-search process that prevent them from moving to a high-opportunity neighborhood. A 2020 study of housing-voucher recipients in Washington State found just that:

"Many families reported that they had limited time and resources to search for housing, as they were facing challenges such as domestic violence, mental health conditions, or holding multiple jobs while caring for children as single parents," wrote the researchers, led by Columbia University's Peter Bergman and Raj Chetty. "Redesigning affordable housing policies to provide customized assistance in housing search could reduce residential segregation and increase upward mobility substantially."

In the study, low-income housing-voucher recipients in Washington's King County (which includes Seattle) were offered services including customized rental search assistance, landlord engagement and short-term financial assistance. They could choose to use their housing voucher in any neighborhood within the housing authority's jurisdiction. Of the families who received the aforementioned services, 53% chose to lease units in high-opportunity neighborhoods, compared with just 15% of families who did not receive the services.

These strategies used to help renters in Seattle could also be employed to help first-time buyers everywhere navigate the home-search process, Redfin's Marr said.

"Local leaders should seek to remove barriers that prevent low-income families from moving into high-opportunity neighborhoods, while also investing in low-opportunity neighborhoods," Marr said. "In addition to offering assistance during the home-search process, governments can invest more in public schools in low-opportunity neighborhoods, offer affordable housing subsidies and reform zoning laws to allow for more housing in high-opportunity neighborhoods."

To view the full report, including charts, tables with metro-level data and methodology, please visit: https://www.redfin.com/news/home-price-premium-high-opportunity-neighborhoods

About Redfin

Redfin (www.redfin.com) is a technology-powered real estate company. We help people find a place to live with brokerage, rentals, lending, title insurance, and renovations services. We also run the country's #1 real estate brokerage site. Our home-buying customers see homes first with same day tours, and our lending and title services help them close quickly. Customers selling a home in certain markets can have our renovations crew fix up their home to sell for top dollar. Our rentals business empowers millions nationwide to find apartments and houses for rent. Customers who buy and sell with Redfin pay a 1% listing fee, subject to minimums, less than half of what brokerages commonly charge. Since launching in 2006, we've saved customers more than $1.5 billion in commissions. We serve more than 100 markets across the U.S. and Canada and employ over 5,000 people.

For more information or to contact a local Redfin real estate agent, visit www.redfin.com. To learn about housing market trends and download data, visit the Redfin Data Center. To be added to Redfin's press release distribution list, email [email protected]. To view Redfin's press center, click here.

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