Who Suffered Most in the Housing Bust?

A new working paper (abstract; PDF) looks at how the recent housing bust affected minorities. Economists Patrick Bayer, Fernando Ferreira, and Stephen L. Ross looked at mortgage outcomes “for a large, representative sample of individual home purchases and refinances linked to credit scores in seven major US markets.”  Here’s what they found:

Among those with similar credit scores, black and Hispanic homeowners had much higher rates of delinquency and default in the downturn. These differences are not readily explained by the likelihood of receiving a subprime loan or by differential exposure to local shocks in the housing and labor market and are especially pronounced for loans originated near the peak of the boom. Our findings suggest that those black and Hispanic homeowners drawn into the market near the peak were especially vulnerable to adverse economic shocks and raise serious concerns about homeownership as a mechanism for reducing racial disparities in wealth.


I think I would be better off in the pure economic sense if I had my house foreclosed on, rather than losing 50% of the value and staying in it.

My decision to avoid foreclosure is that my job is tied to an impeccable credit history, and a lingering sense that I should pay my debts.

Joey Numbaz

It is ridiculous that people's personal credit history has anything to do with their jobs. Privacy laws should address that. Employers shouldn't be able to check that or things like your social media history any more than they should be allowed to ask if you are going to have a child or what race your parents are.

How we ever grew to accept these intrusions from our work to our personal lives is something I will never understand.

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I don't think that I would want to hire a person with a history of personal financial problems for jobs that involve me trusting him or her with large amounts of money. The exact reason doesn't matter much: I don't want you handling my money if you might be tempted to "borrow" it, no matter whether your purpose is to get rich quick by investing it in Nigeria, to go gambling, to buy drugs, to cover up what your kid is stealing, to buy a bunch of designer clothes, or to avoid defaulting on your credit card bills. A bad credit score is a bigger risk, and I don't see why I should have to take it (when relevant).


Not really on topic, but I'm wondering if anyone knows of any studies on the number/percentage of would-be credible house buyers (i.e., those with good credit and able to make a decent-size down payment) who were priced out of the housing market and then didn't end up buying.

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Probably none, because the market offered mortgages to credible buyers, too. And if they didn't buy because it felt too high to them, then they were sitting pretty in 2009 and are probably the happiest homeowners out there now.


Years ago, I read a review of a book on a program in Boston to help African-American minorities become homeowners in the 60s or 70s (have no clue about the name of it). One of the points highlighted in the review was that Whites buying their first home were far more likely to have richer relatives, from whom they could borrow in a pinch. The African-Americans were far more likely to be the richest person in their family/social circle and get requests for loans. As a result, the whites had assets (access to credit from family) that didn't get on the mortgage application and the African-Americans had liabilities (family who needed bailing out periodically) not on the mortgage application.

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This isn't a race-specific phenomenon, but it is very real. If you're the first person in your circle on the way up, you will get tapped for all sorts of needs.

Mike B

This is a wonderful example of how the Business Cycle, which conservatives tend to actually support, is a mechanism for concentrating wealth. As bubbles grow those who already have assets can sell to those who don't and then when the bullet busts the assets can be purchased back by the wealthy who are then holding cash. The wealthy get to sell high then buy low while everyone else buys high and sells low.


Looser requirements for mortgages meant that many people were able to enjoy living in better houses than they would have otherwise. Those who were able to keep up payments are still living there, and that's not suffering. And as for those who were forced to move: they got to live in a house they would not have been able to otherwise.

Chad Hardgrave

I think this story deserves a full blown research project by you guys. The bust is one of the largest events in American history. You should look at the recent research by Zillow and the Urban League on minorities and mortgage lending. I think their research is flawed and creates a racial antagonist where I doubt one exists.