Psychological Impact of the Recession and Housing Recovery
By all accounts, being a homeowner is seen by most as a sign of great accomplishment and success. Where we live affects our perceptions of self-esteem, perceived control of our environment, and financial security. Its interesting to see the results of a Harvard Study on Reexamining the Social Benefits of Homeownership after the Housing Crisis where despite the sufferings of foreclosure, owning a home remains an important desire for many Americans.
During the recent recession, home values fell dramatically, resulting in massive decreases in household wealth. Homeowner equity reached an all-time high of $13.5 trillion in 2006, but by 2009, had fallen to $6.2 trillion. Mass unemployment made it difficult for many to make their mortgage payments and to adequately maintain or repair their homes and many suffered the negative psychological emotions of foreclosure including anxiety, stress, fear, hopelessness, depression and embarrassment.
It’s true that home foreclosure oftentimes interacts with other stressful events in a person’s life such as, illness or divorce, and many see their inability to keep up with their payments as a step backwards for their families and a sign of personal weakness and failure. The elevated levels of stress associated with these life events, especially among minorities, coincided with an increase in suicide attempts, heart attacks, and strokes.
The drawn-out nature of the foreclosure process takes months or sometimes even years to complete and many households with children fought hard to stay in their homes to avoid a disruption to their family, but simply couldn’t survive the mental anguish of this lengthy period of financial stress. The study reveals what many parents felt to be true – that children benefit from the residential stability associated with homeownership. This benefit was identified in several ways:
- Children of homeowners do not change schools as often. Children who change schools often have been found to do considerably worse in school.
- Residential stability may increase parent participation in local civic organizations, thereby building social networks that are supportive of positive child behaviors.
- Homeownership may require parents to learn home repair, financial, and interpersonal skills that they then pass along to their children.
- Improved self-esteem and reduced financial stress among home-owning parents may impact children’s behaviors.
- The children of home-owning parents had math achievement test scores that were nine percent higher and reading achievement scores that were seven percent higher than the children of renters.
- Children of homeowners are generally less likely to drop out of school than those of renters.
What isn’t talked about in the study and what I’ve seen from my clients with a previous short sale or foreclosure, is that many families come closer together as a result of hardship and strive to rebuild their financial health and credit histories to re-enter homeownership. They view homeownership as a way to regain their sense of self-worth and accomplishment. There are many lending programs that allow for shortened periods of time between foreclosure and the ability to obtain a new mortgage when the borrower can show the cause of the foreclosure was due to circumstances beyond their control instead of a strategic default.
In a separate Harvard study released this year, State of the Nation’s Housing 2014, shows us that the housing recovery has been far from even within metro areas as declines in value are found to be 3x’s more severe in minority neighborhoods. Over a quarter of mortgaged homeowners in both high-poverty and minority neighborhoods were underwater in 2013, an amount nearly twice the size of both white and low-poverty neighborhoods.
Why have these homeowners not benefitted from the Home Affordable Refinance Program to reduce their overall monthly payments and utilize the benefit to either reduce their principal balances or invest in the maintenance and/or repair of their homes? Is our industry doing enough for outreach and education to these underserved groups?
Minorities represent the growing share of first-time homebuyers and demographic forces in the period between 2015–25, will drive household growth of 11.6–13.2 million with minorities accounting for 76 percent of net household growth.
Despite their growing presence in the homeownership market, minorities still struggle to obtain loans. In 2011-12, lending to Hispanics was up just 7 percent and 5 percent among blacks, in contrast to an increase of 15 percent or more in the volume of loans extended to both white and Asian/other borrowers. In 2011-12, HMDA reported denial rates for conventional purchase mortgages among Hispanics was 25% and for blacks 40%. These figures are nearly two to three times the denial rate among whites and the recent HMDA data published for 2012-2013 shows no strides in improvement to shorten the gap.
A deeper dive needs to take place to identify the factors that are causing the disparity in mortgage loan approvals and recovery within minority neighborhoods. Perhaps with the enactment of Section 342 of the Dodd-Frank Act, which requires lenders to develop standards for assessing diversity and inclusion policies and practices within their employment practices, supplier selections and organizational transparencies, we may begin to see action plan’s for the active promotion of minority homeownership by leaders, real estate agents, builders, and others involved in the housing industry.