In her presentation, Adena broke down the state of the U.S. housing market and detailed the alternative Divvy offers to American home buyers.
She began with the story of her parents to show what the American Dream means, how it’s disappearing for many Americans, and what Divvy is doing to bring it back.
Our goal here is to break down the key takeaways from Adena’s time on stage. For her full presentation, where she deep dives into the numbers, watch the All-In Podcast or enjoy the full video on YouTube.
Wealth inequality is rising across America
Adena started Divvy to address wealth inequality, so it makes sense to introduce some stats on the subject.
The first chart shows the distribution of household wealth in the U.S.
- The top 10% own 76% of the wealth
- The next 40% own 23%
- The bottom 50% own 1%
Source: Federal Reserve Board’s Survey of Consumer Finances
Also, 20% of those families in the bottom 50% have negative net worth. The rich are getting richer, while the poor are staying at the same level.
The chart below shows the growth in household wealth across the spectrum from 1963 to 2016.
Source: Urban Institute
If you’re in the top 1%, your household wealth was on average $2 million 50 years ago. By 2016, it had grown to about $10 million – five times the earlier amount.
If you’re in the bottom 50%, you haven’t seen your household wealth change much at all.
The main driver of that wealth inequality is asset appreciation
So, why do the rich keep getting richer while the poor’s situation doesn’t change?
For one thing, household income hasn’t grown much in the last 20 years. But if you’re investing in the S&P 500 or have equity in your home, both those assets have seen an increase in value of over 100%.
As an added bonus, you get leverage on your home equity. On top of that, real estate has dual equity. You can’t live in the S&P 500; you can live in a house.
Those who own assets tend to have a higher net worth
Remember that earlier statistic that 20% of families in the bottom 50% have negative net worth? That has everything to do with asset ownership – or the lack thereof.
According to a survey on consumer finances, the bottom 50% of families and households own just 1% of overall equities. And they own 0% of directly held stocks.
By contrast, the top 1% of income earners own 38% of overall equities and 51% of all directly held stocks.
Source: Survey of Consumer Finances, Federal Reserve Board — by The New York Times
So, if you ask why the rich keep getting richer, it’s because they own assets. Those assets compound over time. Plus, there are also a ton of tax benefits (capital gains, etc.).
Your net worth has a lot to do whether you rent or own your home. And according to U.S. Census data, homeowners, on average, have about 75 times the net worth of a renter.
Home ownership is becoming fundamentally inaccessible
At the bottom of the recession in 2012, the average home price in America was $163,000. Today, it’s closer to $338,000. That’s a 200% increase in ten years. Meanwhile, real median income has only increased from about $57,000 to $67,000.
Source: Zillow.com Single Family Home Value Index
So, what’s behind this meteoric rise in housing prices?
From 2000 to 2008, we were building, on average, 1.5 million homes a year, which yields about 4-5 months of inventory.
Then, the global financial crisis happened, causing a massive number of foreclosures. The market was completely flooded, and all of a sudden, you could buy an existing home that was going into foreclosure for $163,000.
With that dip in housing prices, home builders were building fewer homes each year. When COVID hit, it caused a massive spike in demand after years of not building enough inventory. And as demand went up, housing prices did, too.
It’s now harder to buy a home, thanks to two key factors. First, the average down payment has nearly doubled over the past 20 years. At the same time, median income hasn’t gone up. Secondly, the government tightened their restrictions and started demanding a higher FICO score to purchase a home.
Add to that the rise in mortgage interest rates, which were at 3% about a year ago. At 3% interest, 33% of families could afford a mortgage.
Now, we’re at about a 5.5% mortgage rate, with just 22% of families able to afford a mortgage – a number that may drop to less than 15%.
That’s less than half the original percentage of families able to afford a mortgage.
The Divvy model
When Adena started Divvy, her goal was to help solve wealth inequality by giving Americans access to assets. That’s still the sole goal and purpose of Divvy Homes.
So, how does Divvy work? Here’s a quick breakdown:
- Apply on the Divvy website; if approved, they give you a budget.
- Shop for a home with your realtor (they can also recommend one for you).
- When you’re ready to buy, let them know which home you’ve chosen.
- Divvy puts out an all-cash quick-close offer for you.
- Divvy takes care of inspections, and they cover all closing closets and all fees.
- At closing, you commit to 1 to 2% down – about 1/10th the usual down payment.
- Move in, and make one monthly payment – part rent, part equity.
- Build up to 10% in equity over three years.
- At any point, you can get a mortgage, refinance, or cash out.
Divvy Homes operates in 16 metro areas. Their biggest ones are in Georgia, Texas, and Florida. The average household income of a Divvy customer ranges from $50,000 to $150,000 a year. 50% of their customers are people of color. And 80% of their transactions are female-led.
Renting to own with the Divvy model essentially forces customers to build equity, which gives them a real advantage over renters. The average Divvy customer has 25 times the savings of the average renter because they’re building up equity in their property over time.
So, how sustainable is the Divvy model? After all, anyone can say they’re building a mission-oriented company, but to really sell it, they have to show scale and measurable growth. They have to show not only adoption but real impact.
The numbers for Divvy show real growth and profitability since its beginning, with a true profit all-in margin trending toward 25% for 2022.