By Ted O’Callahan
Gender gaps show up in all too many places: pay for professional athletes, political representation, top spots in C-suites and company boards. Some get a lot of attention. For example, the gender wage gap—in the U.S. women earn 80 cents for every dollar that male counterparts earn—is often cited. But attention hasn’t resolved the inequity or its downstream impacts (since social security benefits and, when available, employer-funded retirement matches are tied to wages, lower pay is compounded, feeding into a gender wealth gap at retirement).
Some gender gaps have been documented but are hardly noticed. Bonus pay has a gender gap, for example. Even when women do ask for raises as often as men, they are less likely to get them. And when women launch startups they end up owning 39 cents of founder equity for every dollar going to male founders.
And, for all that, some gender gaps are just being discovered. Yale SOM’s Kelly Shue and Paul Goldsmith-Pinkham recently examined data on the returns from buying houses and found a significant difference between men and women owners. “Unfortunately, we see ourselves as pointing out a major issue that hasn’t been noticed before,” Shue says. “It was surprising to both me and Paul just how large this gender gap is.”
Shue, a professor of finance, and Goldsmith-Pinkham, an assistant professor of finance, analyzed more than 50 million housing transactions from across the U.S. between 1991 and 2017. For about 9 million transactions, it was possible to identify the gender of the participants.
Compared to single men, they found, single women spend about 2% more when they buy a house, and when it is time to sell it, get a price 2% less. That translates to 1.5% less in annual returns. When the leverage created with a typical 20% down and 80% bank-financed mortgage is factored in, the gap is amplified to more than 7%. In dollar terms, single women lose $1,600 per year relative to single men on the same house, based on the median house price and the median holding period. Compared to single men and women who buy or sell in the same time period, couples fall in the middle.
The issue is particularly significant because for most American households, housing accounts for the majority of their wealth. “These variations in housing returns are large and may help explain the gender gap in wealth accumulation at retirement,” Shue says.
What should women homeowners know about the research? One important message is that the size of the gap depends on how long you stay in the house. “The gender gap primarily occurs at execution—purchase and sale,” Shue said. With the typical period for holding a home, 5 years, that’s significant. “However, if you hold onto the home for 10 years, you’re basically taking the loss and dividing it by 10, which means your annual return difference is going to be very small.”
In other words, “buy and hold” is as good a strategy in real estate as it is in the stock market. In fact, Shue notes, when it comes to the stock market, there’s a gender gap in the other direction: women typically outperform men because they tend to buy and hold while men’s returns are hurt by more transaction costs.
A second point to keep in mind: when you buy and sell matters.
Indeed, timing may be part of the explanation for this gender gap. Single men, Shue says, are doing better at timing the market. While the data alone can’t explain the reason why, she points out that single women are more likely than single men to have children or other dependents. “That may restrict their ability to engage in market timing.”
The study finds that differences in how men and women time their real estate purchase accounts for “a little bit less than half,” of the gap, Shue says. Negotiation is the next largest factor. In particular, the largest negotiated discounts off the listed price for homes occurs when there is a female buyer bargaining against a male seller. Bust, Shue warns, “There’s not a sharp delineation between market timing and negotiation. They likely overlap.” That’s because people who buy or sell even though it isn’t the most advantageous market have priorities other than returns on their investment. Perhaps they need to move for work or to fit school schedules. Those other priorities likely weaken bargaining power.
The fact that women are losing out in the negotiation process doesn’t necessarily mean that they are doing anything wrong, Shue points out; gender bias could be playing a role. She points to studies on car buying in which women and men use identical scripts in making an identical purchase, yet women don’t get the discounts offered to men. “There’s also research showing that if women become more aggressive in negotiations, they can actually be worse off because the other side reacts very negatively,” she says.
Another factor that could weaken anyone’s bargaining power is if they just want the house more. “Of course, there are going to be some cases where people pay more because they fall in love with a particular house,” Shue says. This is a key distinction from equity markets, where everyone pays the same price for the same stock, whether they are a rabid fan of a company or someone buying skeptically as part of a duty to diversify. With housing, in theory, a difference in women’s real estate preferences could help explain the gap in returns. “Some people have proposed that maybe single women just really love housing,” Shue says.
This hypothesis might explain why women pay more up front, she notes, but it wouldn’t explain why when they sell their houses, they list them and sell them for less. Nor is it consistent with the gender gap essentially disappearing in tight housing markets. The study finds that the gender gap all but disappears in tight housing markets where the dynamic changes from a bilateral negotiation to something more like an auction where the highest bid wins. The fact that women do better in tight housing markets does not square with the idea that women are more likely to fall in love with a house. If so, women should also submit higher bids in auctions, leading to lower returns in tight housing markets.
Shue and Goldsmith-Pinkham also examined whether single men buy riskier properties and get compensated for that. “Maybe single men are more likely to buy fixer-uppers and that’s why they are earning a higher return,” Shue explains. “We very seriously considered whether they invest more in home maintenance.” While modest DIY work might not show clearly in the data, there was no evidence of greater levels of investment in maintenance or significant renovation by single men.
Many aspects of this research merit further study, Shue says. “There are a lot of dollars on the line.” She adds, “Housing represents the largest category of household saving. It accounts for a greater fraction of total retirement savings than stock investment. Therefore, to lose any percentage on housing really impacts the gender gap in wealth accumulation.”
“I don’t think people expected women to be doing so much worse in the housing market,” Shue notes. “I’d be curious to study whether, given this new information, that changes. I certainly plan to be more careful in future when buying a house.”