The voices of Urban Institute's researchers and staff
July 14, 2011

Falling Home Prices: A Silver Lining With Holes?

The recent national recession and the accompanying foreclosure crisis have prompted many researchers and commentators to focus on the loss of homeownership and wealth. (One exception – see Robert Samuelson’s May 8th column.) But there is an oft-overlooked flip side: who can take advantage of falling prices and low interest rates and move into homeownership?

To get a handle on the long-term impact of the recession on homeownership (or other wealth), let’s look at both sides of the coin—movement into and out of ownership.

In a short brief using recent longitudinal data from the Making Connections Cross-Site Survey conducted in low-income neighborhoods in 6 cities, we begin to explore tenure change for families with children amid the two-pronged crisis. This examination of housing trends early in the housing crisis first shows which groups disproportionately have moved out of homeownership. As might be expected, poor families and families with low home equity are among them.

But we also asked if the opportunities opened up by lower housing prices – the silver lining in the foreclosure crisis – will spread equally or be tapped differentially by various educational, racial, and other socioeconomic groups even after controlling for factors such as income. Our analysis suggests that two-parent and Hispanic families – as well as those in certain cities  – may be relatively more likely and blacks and single-parent families relatively less likely to buy homes now while the prices are low.

Can and should we create policies that spread opportunities provided by lower home values? Perhaps the worst outcome would be to have encouraged disadvantaged households to buy high (a policy supported before the recession) but then not to facilitate buying low.

As they try to improve lending and underwriting practices, policymakers need to think about a balanced approach to helping disadvantaged groups. Proposed down payment requirements of 20 percent or more may disproportionately burden certain groups in areas where it costs less per month to buy than rent. On the other hand, steps to clarify mortgage documents, improve financial literacy, or build up equity sooner may increase families’ prospects for sustainable and less risky homeownership.

Since this housing cycle is not over, tracking homeownership patterns and extending this type of analysis is a first step to fully determining the recession’s differential impact on wealth holdings of different groups of Americans.

The Making Connections Cross-site Survey and analysis is sponsored by the Annie E. Casey Foundation.

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