Homeownership Built to Last: Balancing Access, Affordability, and Risk after the Housing Crisis

3. Reexamining the Social Benefits of Homeownership after the Foreclosure Crisis

3 Reexamining the Social Benefits of Homeownership after the Foreclosure Crisis william m. rohe and mark r. lindblad The recent foreclosure crisis and ensuing economic recession have been unprecedented in modern times. The loss of wealth due to the decline in value of real estate has been dramatic. Between 2006 and 2011 house prices fell more than 30 percent nationally, wiping out over $8 trillion in home equity .1 At the height of the foreclosure crisis, one of every four homeowners with mortgages owed more on their mortgages than their homes were worth.2 Moreover , many people have been put out of their homes and had their credit ratings severely damaged. Mortgage foreclosures increased from the 1980–2006 average foreclosure rate of 0.32 percent to over 4.9 percent in 2010.3 Between 2008 and 2011, more than 4 million homeowners lost their homes to foreclosure, and there are many more homeowners who were forced to sell, often at prices that were less than they owed on their mortgages. Recent data also indicate that there are an additional 2 million homeowners who are at least 90 days delinquent on their mortgage payments, suggesting that the high foreclosure rate will continue for some time to come.4 Given these recent events, it is reasonable to ask, first, if the bloom is off the rose of homeownership. One of the attractions of homeownership is that it has 1. Joint Center (2012). 2. Belsky (2013). 3. Mortgage Bankers Association (2012). 4. Joint Center (2013). 99 100 william m. rohe and mark r. lindblad been seen as a good financial investment. The sharp decrease in housing values may have seriously undermined that view of homeownership. As one writer recently put it, “The national psyche has absorbed the tribulations of the millions of people who have been living in homes worth less than their mortgages, struggling to make payments and yet unable to sell.”5 Another attraction of homeownership is that it is perceived to provide more stability and control over one’s living environment. Homeowners were thought to be more secure than renters since they were not subject to landlords raising the rent or not renewing the lease. Again, the recent spike in foreclosures and forced sales may have seriously undermined this belief among both existing and prospective homeowners. Not only have many people been directly affected by the foreclosure crisis, a much larger number have been indirectly affected by knowing someone who has or by exposure to the extensive press coverage on the crisis. A second and related question is whether the social benefits of homeownership found in past research, such as greater political participation and positive educational outcomes for children, still apply. That research was conducted at a time when a very small proportion of homeowners were experiencing heightened economic and psychological stress due to difficulty in making mortgage payments , mortgage delinquency and foreclosure, and dramatic declines in home equity. Might the recent, noticeable increases in these problems affect the attitudes , behavior, and health of homeowners? Research, for example, has tended to support a positive relationship between homeownership and residential satisfaction . But will this relationship be as strong or hold at all given the large number of vacant homes in many neighborhoods? Other research has tended to support a positive relationship between homeownership and both psychological and physical health. Will this relationship continue given the large number of homeowners that have been under considerable stress in trying to make their mortgage payments? The answers to these questions have important policy implications as the federal commitment to and subsidy of homeownership has been justified by claims that it provides a variety of social benefits both to individuals and society. This chapter has several purposes. First, it presents a conceptual model of how the foreclosure crisis and related recession might affect both interest in and the social impacts of homeownership. A second purpose is to review the limited empirical evidence on how, if at all, the recession and foreclosure crisis have altered interest in homeownership or its actual impacts. A third purpose is to provide an updated review of the research on the social impacts of homeownership , most of which was conducted before the recession. Fourth, we draw some preliminary conclusions about how the recession and foreclosure crisis may have altered these social impacts and what additional research is needed on 5. Shiller (2013). social benefits...