Oregon — A new report from the National Bureau of Economic Research examines the financial risks and long-term rewards associated with homeownership, offering a nuanced assessment of housing as a pathway to wealth.
In “The Risks and Rewards of Homeownership,” economists Patrick Bayer, Fernando V. Ferreira, and Stephen Ross analyze housing market data spanning the 2000s housing boom, the Great Recession, and the subsequent recovery through 2022.
The researchers note that for middle-class households, home equity remains the largest source of wealth and financial security. However, they caution that homeownership exposes households to substantial risks, particularly during economic downturns.
Foreclosure Risks Peaked at the Housing Market High
Using credit data on borrowers who purchased or refinanced homes during the housing boom, the study found that foreclosure risk was highest for mortgages originated in 2006, near the market peak.
Even after controlling for borrower characteristics and broader economic conditions, loans originated in 2006 showed significantly elevated foreclosure rates compared with those from later years. The authors conclude that pre-existing borrower risk — including vulnerability to income or job loss — played a larger role than falling home prices alone.
The findings raise questions about broad policy efforts to expand homeownership as a tool for reducing wealth disparities. The authors warn that encouraging especially vulnerable households to enter the housing market during boom periods can leave them exposed to severe financial distress when markets decline.
Mortgage Modifications and Home Retention
In follow-up research extending through 2022, the authors examined borrowers who experienced severe mortgage delinquency between 2008 and 2010. They compared those who received mortgage modifications with similar borrowers who did not.
By 2013, a 35-percentage-point gap had emerged in home retention between modified and non-modified borrowers. Although some households lost their homes and struggled to re-enter homeownership, the study found that long-term financial outcomes were more resilient than expected.
Credit scores and consumer spending patterns declined sharply during the recession but largely recovered over the next decade, regardless of whether borrowers ultimately lost their homes. By 2022, many formerly delinquent borrowers had regained substantial housing equity due to rising home prices.
Long-Term Wealth Effects
The study estimates that delinquent borrowers held roughly $70,000 in equity in 2007, much of which was wiped out during the downturn. However, by 2022, average equity among borrowers who retained homes had risen to nearly $200,000, while even those who lost homes had accumulated significant equity after re-entering the market.
The researchers conclude that while homeownership carries substantial short-term downside risk — particularly during economic shocks — long-term capital gains may offset those losses for many households.
Credit Tightening and Younger Households
Preliminary findings from ongoing research suggest that tighter mortgage credit standards following the Great Recession reduced homeownership rates among younger and middle-income households. The authors indicate that delayed entry into homeownership may have long-term implications for wealth accumulation and inequality.
Overall, the report emphasizes the need for balance in housing policy. Overly permissive lending can expose borrowers to unsustainable risks, while excessive credit restriction may prevent households from accessing one of the primary channels of wealth building in the United States.
The authors conclude that maintaining mortgage markets that are both accessible and financially prudent remains central to preserving homeownership as a source of economic opportunity rather than financial vulnerability.
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