Minority Homeownership During the Great Recession

photo by Daniel X. O'Neil

Print by Andy Kane

Carlos Garriga et al. have posted The Homeownership Experience of Minorities During the Great Recession to SSRN. The paper concludes,

The Great Recession wiped out much of the homeownership gains attained during the housing boom. However, the homeownership experience was very different across racial and ethnic groups. Black and Hispanic borrowers experienced substantial repayment difficulties that ultimately led to a greater share of homes in foreclosure.

Given that home equity often represents a substantial share of household wealth, these foreclosure events severely damaged the balance sheets of minority families. The dynamics of delinquency and foreclosure functioned differently across the income distribution within racial and ethnic groups.

For the majority, higher income was associated with lower delinquency rates and fewer foreclosures as a group. However, for Hispanic families this relationship was surprisingly reversed. Hispanics with the highest incomes fared worse than those with the lowest incomes. This counterintuitive finding suggests how college-educated Hispanic families may have had worse wealth outcomes than their non-college-educated peers: Hispanic families with high income (potentially the result of high educational attainment) had a greater share of home equity lost in foreclosure than lower-income Hispanic families.

Logit regressions suggest that underwriting standards and loan structure explain a significant amount of the greater likelihood of foreclosure among Black and Hispanic borrowers. However, underwriting standards explained more of the gap for Black borrowers, while loan structure was a stronger factor among Hispanic borrowers. Regional concentration and variation in housing markets explained more of the Hispanic-White foreclosure gap than any other group. This is understandable given that Hispanic borrowers in our sample were heavily concentrated in housing markets that experienced some of the largest volatility. Despite accounting for these important factors, sizable gaps remain in foreclosures among Blacks and Hispanics relative to Whites. Incorporating measures of labor market outcomes into the analysis may offer further insights.

In sum, the homeownership experience during the Great Recession proved to be inimical for many families, but far more so for Black and Hispanic families. For these families, financially destructive foreclosure events delayed and potentially derailed the dream of homeownership. (164-65)

I am not sure what this all means for housing finance policy other than the obvious: consumer protection in the mortgage market is a good thing as it ensures that underwriting standards evaluate ability-to-repay and loan structures exclude abusive terms like teaser rates (thanks to the ATR and QM rules and the Consumer Financial Protection Bureau). There are probably other policies that we should consider to reduce the depths of our busts, but they do not seem likely to gain traction in the current political environment.

Mommy, I’m Home!

cartoon by Mell Lazarus

The Pew Research Center has released For First Time in Modern Era, Living with Parents Edges out Other Living Arrangements for 18- to 34-Year-Olds (link for complete report on right side of page). This report adds to the growing literature on changes in household formation (see here, for instance) that have taken hold in large part since the financial crisis. There are lots of reasons to think that the way we live now is different from how we lived one generation, two generations, three generations ago.

The report opens,

Broad demographic shifts in marital status, educational attainment and employment have transformed the way young adults in the U.S. are living, and a new Pew Research Center analysis of census data highlights the implications of these changes for the most basic element of their lives – where they call home. In 2014, for the first time in more than 130 years, adults ages 18 to 34 were slightly more likely to be living in their parents’ home than they were to be living with a spouse or partner in their own household.

This turn of events is fueled primarily by the dramatic drop in the share of young Americans who are choosing to settle down romantically before age 35. Dating back to 1880, the most common living arrangement among young adults has been living with a romantic partner, whether a spouse or a significant other. This type of arrangement peaked around 1960, when 62% of the nation’s 18- to 34-year-olds were living with a spouse or partner in their own household, and only one-in-five were living with their parents. (4, footnotes omitted)

The report found that education, race and ethnicity was linked to young adult living arrangements. Less educated young adults were more likely to live with a parent as were black and Hispanic young adults. Some of the other key findings include,

  • The growing tendency of young adults to live with parents predates the Great Recession. In 1960, 20% of 18- to 34-year-olds lived with mom and/or dad. In 2007, before the recession, 28% lived in their parental home.
  • In 2014, 40% of 18- to 34-year-olds who had not completed high school lived with parent(s), the highest rate observed since the 1940 Census when information on educational attainment was first collected.
  • Young adults in states in the South Atlantic, West South Central and Pacific United States have recently experienced the highest rates on record of living with parent(s).
  • With few exceptions, since 1880 young men across all races and ethnicities have been more likely than young women to live in the home of their parent(s).
  • The changing demographic characteristics of young adults—age, racial and ethnic diversity, rising college enrollment—explain little of the increase in living with parent(s) (8-9)

It seems like unemployment and underemployment; student debt; and postponement or retreat from the institution of marriage all play a role in delaying young adult household formation.

My own idiosyncratic takeaway from the report is that, boy, the way we live now sure is different from how earlier generations lived (look at the graph on page 4 to see what I mean). Moreover, there is no reason to think that one way is more “natural” or better than the other. That being said, it sure is worth figuring out what we are doing now in order to craft policies to properly respond to it.

Racial & Ethnic Change in NYC

Brooklyn's poet, Walt Whitman

Brooklyn’s poet, Walt Whitman

Michael Bader and Siri Warkentien have posted an interesting mapping tool, Neighborhood Racial & Ethnic Change Trajectories, 1970-2010. They had set out to answer the question:

how have neighborhoods changed since the Civil Rights Movement outlawed discriminatory housing? We study how neighborhood racial integration has changed during the four decades after the legislative successes of the Civil Rights Movement. We were unsatisfied with previous studies that focused mostly on defining “integrated” and “segregated” neighborhoods based on only on whether groups were present. We thought that the most interesting and important changes occur within “integrated” neighborhoods, and we set out to identify the common patterns of those changes.

We used a sophisticated statistical method to identify the most common types of change among Blacks, Latinos, Asians and Whites in the metropolitan neighborhoods of the four largest cities in the U.S.: New York, Los Angeles, Chicago, and Houston. We were disappointed to learn that many integrated neighborhoods were actually experiencing slow, but steady resegregation — a process that we call “gradual succession.” The process tended to concentrate Blacks into small areas of cities and inner-ring suburbs while scattering many Latinos and Asians into segregating neighborhoods throughout the metropolitan area.

While we reserve a healthy dose of pessimism about long-term integration, we also find neighborhoods experiencing long-term integration among Blacks, Latinos, Asians, and Whites. We call these “quadrivial” neighborhoods, which derives from Latin for the intersection of four paths. We thought that seemed appropriate given the often different paths different racial groups took to these neighborhoods. (emphasis in the original)

I was, of course, interested in the New York City map. While NYC is highly segregated, it was interesting to see the prevalence of these so-called quadrivial neighborhoods. The authors find that

About 20 million people call the New York metropolitan area home. The metro area is one of the most segregated in the United States and, as a result, New York has a large proportion of neighborhoods following stable Black and stable White trajectories. Some of the segregation came about because of White flight during the 1970s. Black segregation following this path clusters in the Lower Bronx, North Brooklyn, and in and around Newark, New Jersey.

Large-scale Latino immigration to the New York metro area has been relatively recent, and the number of recent Latino enclaves bears out that pattern. Neighborhoods experiencing recent Latino growth are scattered throughout suburban New Jersey, Long Island and northern New York neighborhoods. New York also experienced high levels of Asian immigration relative to other metropolitan areas. Neighborhoods experiencing recent Asian growth are scattered throughout the metropolitan region.

New York also contains a large number of quadrivial neighborhood and the highest proportion of White re-entry neighborhoods. The latter are found near transportation to Manhattan in the gentrifying areas of Jersey City and Weehawken, New Jersey and the Brooklyn terminals of the Manhattan and Williamsburg Bridges.

New York, therefore, contains the contradiction of containing a large number of segregating neighborhoods along with a distinct trend toward integration.

I am not sure that I have any insight to explain that contradiction, although Walt Whitman, Brooklyn’s poet, notes:

Do I contradict myself?

Very well, then I contradict myself,

(I am large, I contain multitudes).

Wednesday’s Academic Roundup

Wednesday’s Academic Roundup

Wednesday’s Academic Roundup