Here’s where we want inequality — house prices

When it comes to income and wealth, most people would say there should be less inequality.

But what about housing?

Online loan marketplace LendingTree took a look at what it’s calling home price inequality. As LendingTree’s chief economist, Tendayi Kapfidze, told MarketWatch, the Gini coefficient, which economists use to measure wealth distributions, can really be applied to any distribution of values.

LendingTree plotted home prices in 50 metros to find each area’s Gini coefficient, which ranges from complete equality with no variation among values, to the opposite.

After running that experiment, Kapfidze argues that unlike with incomes, less equal is better. Metro areas where home prices are spread across a wider spectrum offer more options for more buyers, with particular accessibility for the lowest segment of the market, which is often the most challenged.

The reverse is also true. In metro areas where home prices are stuck in a tight range, there are fewer options for buyers at various price points, most likely because there’s hearty competition for entry-and mid-level homes.

The cities that are the most “unequal” include Detroit, Indianapolis, and St. Louis – areas like the Rust Belt where populations are often declining, and there are fewer home prices sky-high. But small pockets of wealth mean that there are still high-priced homes available. And Kapfidze argues that jobs are plentiful across the country, even if some of the less-expensive metros don’t have as many high-paying positions as in pricier coastal metros.

Meanwhile, some of the more “equal” markets include Salt Lake City, Portland, Oregon, and Denver, where the story is about “lower-priced homes being bid up because of demographics and income,” as Kapfidze put it.

There are some big caveats to the notion that more homes at cheaper prices is a panacea. Among other things, LendingTree’s analysis, which Kapfidze calls “whimsical,” doesn’t take into account incomes in each of the metros it surveyed. He thinks there’s room for a follow-up or two.

Another consideration: lenders are usually reluctant to make small mortgages. Each time they write a loan, there are fixed costs, so if they can’t recoup that money through interest payments on the mortgage, or from the kind of banking relationship that may come with a customer who qualifies for a big home loan, they often avoid mortgages lower than $70,000 or so.

Still, a LendingTree spokeswoman assured MarketWatch that lenders in each of the “most unequal” metros were willing and able to extend such loans. And Kapfidze thinks that calculus may shift slightly for many mortgage lenders as refinancing volume dries to a trickle.