The Great Recession, which began in 2008, resulted in a housing crisis, with over six million American households facing foreclosure. What happened to these people after then, and how did their financial situation change? According to Assistant Professor of Law Michael Ohlrogge, these findings could provide insight into the future trajectory of the new housing problem following the COVID-19 outbreak.
Ohlrogge and his co-author, Christos Makridis, looked at a nationally representative sample of 1.4 million people who had lost their houses as a result of the recession. They followed these people from their original zip code or census tract to the new communities where they moved after their homes were foreclosed on to see how their relocation influenced their future economic chances. Their findings, which show that people can relocate to locations with greater economic prospects in general but that there are some racial differences in outcomes, will be published in the Journal of Economic Geography in an article titled “Moving to Opportunity?” The Foreclosure Crisis’ Geography and the Importance of Location.”
Ohlrogge’s interest in this topic arose from his work as a community organizer in Oakland, California, between 2008 and 2009, when the city was hit hard by foreclosures. According to him, these foreclosures not only impacted people on a personal basis, but also contributed to the downfall of particular Oakland communities on a larger scale.
“I was worried that people would end up in a triple whammy position,” Ohlrogge says, “where they’ve lost their job, which leads to foreclosure, and then they have less money, a poorer credit rating, and they need to move, but they’re priced out of locations with better economic chances.”
According to Ohlrogge, the largest existing database with pre- and post-foreclosure information was created by matching and merging a mail marketing database comprising relocation data with public real estate records.
People went to locations with lower unemployment and greater wages, according to the co-authors, especially when moving to a different county. Because labor markets are broadly defined at the county and state levels, the research shows that these migrations to other counties reflect a relocation to different (and stronger) labor markets.
When comparing Black and white Americans in the same zip code or census tract prior to foreclosure, the researchers found that white Americans had better post-foreclosure living conditions than Black Americans, shifting to areas with lower unemployment rates and higher per capita earnings (though both groups slightly improved their conditions). Favorable outcomes for both Black and white Americans were dependent on a number of circumstances, including the length of time between the start and finish of a foreclosure: a longer delay could have given them more time to look for better possibilities outside of their county, according to Ohlrogge.
Ohlrogge adds that the findings of the study should not be interpreted to mean that those who have lost their homes have benefited from the foreclosure process. While people were able to relocate to locations with better economic prospects, per capita income in these areas remained below the state average. They also went from owning a home to renting one.
“I think the evidence in other research beyond what’s in this work is pretty obvious that foreclosures are tremendously disruptive events…for individuals and communities,” Ohlrogge adds. “And that’s simply very, very well established in the literature at this time.”
In the midst of the pandemic’s current economic downturn, this study outlines topics that authorities should consider when dealing with potential waves of foreclosures.
“These findings cast a new perspective on attempts to avoid economic and financial calamities that result in foreclosures.” While these calamities may affect a large number of people, not everyone recovers at the same rate, according to Ohlrogge. He argues that the disparities in foreclosure results between Black and white Americans adds a layer of racial equality concerns that must be explored.
“Finance isn’t simply for people who are interested in money,” he emphasizes in his teaching and research. “What happens in the financial system has an impact on issues like social justice, environmental protection, and more.”
How many homes were foreclosed on during the Great Recession?
To put things in perspective, many Americans lost their houses to foreclosure during the Great Recession. According to real estate data, the Great Recession resulted in more than 3.7 million completed foreclosures.
How many people lost their homes in the financial crisis of 2008?
The effects of the Great Recession of the mid-2000s are still being felt, particularly in the property market. Between 2006 and 2014, an estimated ten million people lost their houses to foreclosure as a result of a period of frenetic and speculative homebuying fueled by easy credit.
How many people in the United States lost their homes during the financial crisis of 2008?
- The American Dream is an idea that anybody, regardless of their origins, may achieve superior financial status.
- During the Great Recession, the housing market collapsed, displacing nearly 10 million Americans and destroying the American Dream for many.
- The widening wealth divide in the United States, exacerbated by the 2020 economic crisis, has made the American Dream unattainable for a huge segment of the population.
Why were there so many foreclosures in 2008?
Between 2007 and 2010, the United States’ housing market experienced a dramatic increase in property seizures, known as the foreclosure crisis. The foreclosure crisis was one facet of the financial crisis and Great Recession that erupted at this time. Excessive mortgage credit, complex mortgage debt securitization schemes, and a quick growth in the number of foreclosures (in an industry unprepared to handle them all) all led to the crisis.
During the Great Depression, how many homes were foreclosed on?
Between 1926 and 1929, the number of nonfarm residential real estate foreclosures more than doubled. The number of foreclosures increased even more with the start of the Great Depression, rising from 134,900 in 1929 to 252,400 in 1933.
In 2007, how many foreclosures were there?
According to RealtyTrac, an online seller of foreclosure properties, total foreclosure filings increased by 97 percent in December compared to December 2006. Total filings, which include default notices, auction sale notices, and bank repossessions, increased by 75% year over year.
In 2007, more over 1% of all U.S. households were in some stage of foreclosure, up from 0.58 percent the previous year.
“We’re seeing a lot more bank repossessions in some regions of the country,” said Rick Sharga, a RealtyTrac spokesperson. “People are losing their houses on a daily basis.”
Last year, approximately 66,000 people in California lost their houses. In Michigan, 47,000 households were forced to file for bankruptcy. Nevada was also heavily struck, with a per-capita rate of more than double that of California, with 10,000 people losing their houses.
California had the most foreclosure filings at 250,000, more than any other state. With almost 165,000 total filings, Florida came in second.
Michigan, which has been affected hard by job losses in the car industry and has over 87,000 filings, Ohio, which has over 89,000 filings, and Colorado, which has 39,000.
Nevada had 3.376 foreclosure filings per 100 households, more than three times the national average and the highest rate of any state.
Will the housing market collapse in 2022?
While interest rates were extremely low during the COVID-19 epidemic, rising mortgage rates imply that the United States will not experience a housing meltdown or bubble in 2022.
The Case-Shiller home price index showed its greatest price decrease in history on December 30, 2008. The credit crisis, which resulted from the bursting of the housing bubble, was a contributing factor in the United States’ Great Recession.
“Easy, risky mortgages were readily available back then,” Yun said of the housing meltdown in 2008, highlighting the widespread availability of mortgages to those who didn’t qualify.
This time, he claims things are different. Mortgages are typically obtained by people who have excellent credit.
Yun claimed that builders were developing and building too many houses at the peak of the boom in 2006, resulting in an oversupply of homes on the market.
However, with record-low inventories sweeping cities in 2022, oversupply will not be an issue.
“Inventory management is a nightmare. There is simply not enough to match the extremely high demand. We’re seeing 10-20 purchasers for every home, which is driving prices up on a weekly basis “Melendez continued.
It’s no different in the Detroit metropolitan area. According to Jurmo, inventories in the area is at an all-time low.
“We’ve had a shortage of product, which has caused sales prices to skyrocket. In some locations, prices have risen by 15 to 30 percent in the last year “He went on to say more.
In 2008, how many homes defaulted?
A foreclosed home is a visual symbol of the housing crisis we are experiencing today. The number of residences with at least one foreclosure filing in the United States climbed from 717,522 in 2006 (0.6 percent of all housing units) to 2,330,483 in 2008. (1.8 percent of all housing units).
How affordable were homes in 2008?
The median price of a home sold in the United States in the fourth quarter of 2008 was $180,100, down from $205,700 in the previous quarter.
In 2008, prices dropped by a record 9.5 percent to $197,100, down from $217,900 in 2007. In instance, between 2006 and 2007, median home prices fell by only 1.6 percent.
45 percent of all transactions were distressed properties, such as foreclosures and short sales that have swamped the market. This has increased sales volume in Nevada, California, and other places that have been affected hard by foreclosures, but it has also pushed median prices down.
“People are responding to discounted prices and slowly absorbing excess inventory,” NAR President Charles McMillan said. “Today’s pricing definitely provides value to buyers.”
US house prices fell, borrowers missed repayments
Falling US housing values and an increase in the number of bankruptcies were the drivers for the Great Recession.
Borrowers who are unable to pay back their loans. In the United States, house prices reached a high point.
around the middle of 2006, at a time when the supply of newly built residences in the area was rapidly increasing,
a few areas As home prices began to plummet, the number of borrowers who were unable to repay their loans increased.
repayments on their loans began to soar. Repayments on loans were particularly difficult.
Because the number of Americans who own a home is so high in the United States, property prices are a big factor.
Households with huge debts (both owner-occupiers and investors) had increased dramatically.
It was higher than in other countries during the boom.
Stresses in the financial system
Around the middle of 2007, the financial system began to show signs of stress. Some financial institutions are lenders.
and investors began to lose a lot of money since many of the houses they bought were worthless.
After the borrowers defaulted on their payments, the property could only be repossessed.
sold for less than the loan principal Relatedly,
MBS became less appealing to investors.
things and were making a concerted effort to market them.
holdings. As a result, MBS prices have fallen.
MBS’s value, and consequently the net worth, has declined.
MBS investors are a diverse group. As a result, investors who had previously
MBS was purchased with short-term loans, and it was discovered.
Rolling over these loans is far more complex.
MBS sales and falls in the stock market were worsened much further.
Prices for MBS.
Spillovers to other countries
Foreign banks were active, as previously mentioned.
participants in the housing market in the United States during
the boom, which includes MBS (mortgage-backed securities) purchases
short-term funding in US dollars). Banks in the United States were also involved.
There are significant operations in other nations. These
The interconnections offered a pathway for the flow of information.
The issues in the US housing market are expected to spread to the rest of the world.
Other countries’ financial systems and economies
Failure of financial firms, panic in financial markets
Following the disaster, financial tensions reached an all-time high.
Lehman Brothers, a financial firm based in the United States, filed for bankruptcy in 2008.
September of that year. In addition to failure or near-failure,
a slew of other financial institutions have failed
This sparked a panic in the financial markets at the moment.
internationally. Investors began to withdraw their funds.
a global network of banks and investment funds
because they had no idea who would be the next to fail
illustrates the extent to which each institution was exposed to subprime mortgages
& other insolvent loans As a result, financial
As everyone sought to make the markets work, they became dysfunctional.
to sell at the same moment and with a large number of institutions
Those in need of new funding were unable to secure it.
Additionally, businesses have become far less ready to invest.
as well as households who are less willing to spend due to a lack of confidence
collapsed. As a result, the United States and some other countries have taken action.
Other economies are in the midst of the worst recessions they’ve ever experienced.
since the end of the Great Depression