Estimated Gains in Home Equity Varied by Racial and Ethnic Groups before and during the Great Recession

Did the housing market’s boom and bust before and during the Great Recession expand racial and ethnic gaps in home equity? Jacob W. Faber and Ingrid Gould Ellen examined this question by comparing changes in home equity—the difference between a home’s value and the remaining principal on associated mortgages—among racial groups for homeowners who stayed in their units during the housing market’s upheavals related to the Great Recession: the market’s rise (2003–07) and collapse (2007–09). Using data from the American Housing Survey, the authors sampled households who lived in owner-occupied structures with no more than four units from 2003 to 2009. This sample included 2,324 homeowners in 128 metropolitan areas, which the researchers used to estimate changes in home equity nationwide and in metropolitan areas across four distinct racial and ethnic groups: non-Hispanic white, non-Hispanic black, non-Hispanic Asian/other, and Hispanic. To isolate the links between changes in home equity and the housing market’s boom and bust, the authors controlled for appreciation across geographies, housing unit characteristics, and homeowners’ socioeconomic characteristics. The researchers also estimated the likelihood of a household being underwater (i.e., the outstanding associated mortgage principal exceeds the home’s value) in 2009 by racial group. Faber and Ellen found that although homeowners of all racial and ethnic groups that remained in their homes during this time experienced gains in home equity, on average, increases in home equity and the likelihood of being underwater varied by racial and ethnic groups.

Key findings

• The differences in estimated gains of home equity were largest between Hispanic and white households.
• Black households gained less home equity than whites, but this difference was associated with education and income disparities and differences in unit characteristics.
• Black and Hispanic homeowners were more likely than white homeowners to be underwater in 2009.