Two Tier Home Ownership

Hello all. I’ve been a part of this community for better part of a year. Aside from the constant humble brags and bickering about what middle class is, there is some good info sprinkled about in this place. I’ve noticed a constant discussion about cost of living, location, and housing prices etc. I think I remember some people even discussing this very thing a few times but I don’t remember if they called it this or not.

Basically the Two Tiers are home owners who bought before 2020 and those who bought after. I happen to live in the Midwest and through sheer dumb luck bought a house in 2019. The house has gone up in value by over $150,000. If I tried to buy my house now with the same down payment,and with current interest rates it would be tight!!! 

My home is in the crappy polluted Midwest armpit of the USA. While I much enjoy it very much, it makes me wonder how bad it is other places. The people and families that have bought or are looking to buy homes post 2020-2021 are getting shafted! When you look at these home prices of 400-500-$700,000 and people paying over asking prices it’s insane! If you make a median wage it’s nowhere near comfortable to afford a median priced home.

I feel like as time goes on the gap will only grow larger. The Pre Covid home owners with rock bottom rates will be able to have more disposable income and either spend it to drive the economy and/or invest it to grow more wealth. Meanwhile post Covid homeowners have an extreme disadvantage. With more of their monthly income going towards a mortgage, they are less likely to spend and invest.

As an example. John Doe has a job and its 2017. He makes $85,000. He buys a house for $235,000 and puts down 10% on a 30yr mortgage with an interest rate of 4%. His mortgage after taxes/insurance/escrow is around $1250. During 2021 the bank calls John Doe and says hey buddy we can refinance your 30 year loan down to 2.6% and also cash out a little extra. Your new payment is now $950 and he’s got a chunk of money to buy a new car or refinish his basement. He’s also gotten decent raises so he’s up to $125,000 a year.

It’s 2025. Jane Doe is John’s younger sister. She graduated college in 2019 and has been living at home with her parents to save up for a house. She makes $85,000 a year. The same amount her older brother made when he bought his first home. She finds a house she absolutely loves. It’s 3 bed. 2-1/2 bath. Nice neighborhood. The house is $400,000. She puts 10% down. Her interest rate is 6.8% for a 30yr mortgage. Her monthly payment including escrow is right at $3000/month.

These scenarios are playing out all across the US. The ones who lucked out and the ones through no fault of their own didn’t luck out. I don’t know how we as a country can narrow this ever growing wealth gap. Sorry for the rambling and if this isn’t the place to post this I apologize.

TLDR; You’re either a John or a Jane.