Study Reveals that the Housing Collapse hit Minorities the Hardest
According to a new study from the Federal Reserve Bank of St. Louis, the housing market collapse that started in 2006 and led to the deepest recession and worst financial crisis in generations had a disproportionate impact on minority communities that still hampers the ability of low-income households to fully participate in the economy. The study highlights the lasting impact of the nation’s historic housing downturn on the country’s most vulnerable. Two key factors amplified the effects of the housing slump on minority households: home prices often tumbled even more than average in urban, low-income areas, and minorities often held a larger share of their wealth in housing than whites. The study states that homeowners’ equity (HOE), the market value of residential property minus the amount of mortgage debt remaining on the property, has long been the largest component of wealth for black and Latino families. William Emmons, an economist at the St. Louis Fed’s Center for Household Financial Stability who was author of the report, states:
Relatively low cumulative increases in long-run wealth for black and Latino families resulted from large declines in asset values after 2007, when the financial crisis and then the Great Recession took their toll. In contrast, from 1989 to 2004, black and Latino families experienced greater average overall wealth gains than white and Asian families.
Over the past 25 years, average HOE accounted for close to 50 percent of black and Latino families’ wealth, compared to 32 percent of wealth of Asian or other families, and about 27 percent for white families. The research found that during peaks reached in 1989 and 2007, HOE represented even more than 50 percent of the wealth of black and Latino families on average. During this time period, the inflation adjusted value of HOE increased by only 0.5 percent a year for Hispanic families and actually declined, on average, by 0.4 percent a year for black families. The research is very insightful in explaining the current situation of minorities due to the housing crisis.