Race and the Housing Cycle: Differences in Home Equity Trends Among Long-Term Homeowners

Jacob Faber and Ingrid Gould Ellen
Housing Policy Debate, 26:3 (2016), pp. 456-73.

During the past decade, housing markets across the United States experienced dramatic upheaval. Housing prices rose rapidly throughout much of the country from 2000 until the start of 2007 and then fell sharply during the next two years. Many households lost substantial amounts of their equity during this downturn; in aggregate, U.S. homeowners lost $7 trillion in equity from 2006 to 2009. Aggregate home equity holdings had fallen back to 2000 levels by early 2009. While this intense volatility has been well documented, there remain unanswered questions about the variation in experiences across racial groups, particularly among those who purchased their homes before the boom and kept them through the collapse of the market. Did this housing market upheaval widen the already large racial and ethnic gaps in housing wealth? Using the American Housing Survey, we analyze differences in the changes in home equity experienced by homeowners of different races and ethnicities between 2003 and 2009. We focus on homeowners who remained in their homes over this period and find that blacks and Hispanics gained less home equity than whites and were more likely to end the period underwater. Black-white gaps were driven in part by racial disparities in income and education and differences in types of homes purchased. Latino-white disparities were most dramatic during the market’s bust.