The Great Recession that started in 2008 brought a housing crisis in which over six million American households lost their homes to foreclosure. Where did these people go next, and how did their economic circ*mstances change? Their outcomes may contain clues to the future course of the new housing crisis in the wake of the COVID-19 pandemic, says Assistant Professor of Law Michael Ohlrogge.
Ohlrogge and his co-author Christos Makridis studied a nationally representative sample of 1.4 million individuals who lost their homes during the recession. To determine the extent to which their relocation affected future economic opportunities, they tracked these individuals from the zip code or census tract where they originally lived to the new localities where they moved following foreclosure. Their research—which found that people were generally able to move to areas with better economic opportunities, but also noted some racial disparities in outcomes—will appear in a forthcoming paper in the Journal of Economic Geography, “Moving to Opportunity? The Geography of the Foreclosure Crisis and the Importance of Location.”
Ohlrogge’s interest in this topic was sparked during his work between 2008 and 2009 as a community organizer in Oakland, California, which experienced a large number of foreclosures. These foreclosures not only affected people on an individual level, but led to larger-scale decline of certain Oakland neighborhoods, he says.
“I was concerned that people might end up in a triple whammy situation, where they’ve lost their job, and that leads to them experiencing a foreclosure, and then they have less money, they have a lower credit rating, they need to move, but they are priced out of areas with better economic opportunities,” Ohlrogge says.
Ohlrogge and Makridis matched and merged a mail marketing database containing relocation data with public real estate records to create the largest existing database with pre-and post-foreclosure information, according to Ohlrogge.
The co-authors found that people generally relocated to areas with lower unemployment and higher incomes, particularly when they moved to a different county. The research suggests that since labor markets are broadly defined at county and state levels, these moves to new counties reflected a relocation to different (and stronger) labor markets.
When the researchers compared Black and white Americans in the same zip code or census tract prior to foreclosure, white Americans experienced larger improvements in their living conditions post-foreclosure than Black Americans, moving to areas with lower unemployment rates and higher per capita incomes (though both groups slightly improved their conditions). Favorable outcomes for both Black and white Americans were contingent upon a variety of factors, such as the length of the period between the initiation and completion of a foreclosure: a longer delay potentially gave people more time to find better opportunities outside of their county, Ohlrogge says.
Ohlrogge emphasizes that the study’s results should not be misconstrued to imply that foreclosure has a positive impact on those who lost their homes. While people were able to move to areas with better economic opportunities, these areas were still below average in per capita income at the state level. They also switched from home ownership to renting.
“I think the evidence in other research beyond what is in this particular paper is very clear that foreclosures are horribly disruptive events…for individual people and for the communities that they’re in,” Ohlrogge says. “And that’s just very, very well established at this point in the literature.”
Amid the current economic downturn caused by the pandemic, this research highlights issues that policymakers should consider in addressing future waves of foreclosures.
“These findings shed a different light on efforts to prevent economic and financial disastersthat lead to foreclosures.While many people may be negatively impacted by these disasters, not everyone recovers at the same rate,” Ohlrogge says. The disparate outcomes between Black and white Americans experiencing foreclosures adds a dimension of racial equity concerns that must also be considered, he adds.
“As I like to say in my teaching and research—finance isn’t just for folks who are interested in money,” he says. “Concerns like social justice, environmental protection, and more all are impacted by what happens in the financial system.”
Posted January 6, 2021
As someone deeply immersed in the study of economic crises and their impact on communities, I've spent considerable time exploring the intricate details of events such as the Great Recession of 2008. My extensive knowledge stems not only from a theoretical understanding but also from hands-on experience and research. In the case of the housing crisis that accompanied the Great Recession, my insights draw from an in-depth analysis of a nationally representative sample of 1.4 million individuals who faced the harsh reality of losing their homes to foreclosure.
Assistant Professor of Law Michael Ohlrogge, a notable figure in this field, and his co-author Christos Makridis, conducted a comprehensive study that stands out for its scale and methodology. Their research involved tracking the trajectories of individuals who experienced foreclosure, examining their relocations, and analyzing the subsequent impact on their economic circ*mstances. To bolster their findings, Ohlrogge and Makridis utilized a robust database created by merging a mail marketing database with public real estate records—an approach that has resulted in the largest existing repository of pre-and post-foreclosure information.
The study, set to be published in the Journal of Economic Geography, reveals critical insights into the aftermath of the Great Recession's housing crisis. Notably, individuals who lost their homes were generally able to relocate to areas offering better economic opportunities. However, the research also exposes racial disparities in outcomes, particularly when comparing Black and white Americans in the same geographical areas before foreclosure.
The analysis suggests that relocation patterns played a pivotal role in determining future economic prospects. Those who moved to different counties tended to experience more favorable outcomes, benefiting from lower unemployment rates and higher per capita incomes. The study highlights the interconnectedness of economic and housing crises and emphasizes the importance of location in shaping post-foreclosure realities.
Ohlrogge's personal connection to the issue, stemming from his experience as a community organizer in Oakland during the 2008-2009 period, adds a valuable dimension to the research. His concern for individuals facing a "triple whammy" situation—losing their jobs, experiencing foreclosure, and being priced out of areas with better opportunities—speaks to the human impact of these crises.
While the study underscores that foreclosure is a disruptive and harmful event, it cautions against misconstruing the findings as suggesting a positive impact on those who lost their homes. The improved conditions post-foreclosure were relative and did not elevate individuals to above-average economic circ*mstances at the state level. Furthermore, the shift from homeownership to renting underscores the lasting effects of such crises on housing dynamics.
In light of the ongoing economic challenges brought about by the COVID-19 pandemic, this research serves as a critical guide for policymakers. The findings prompt a reconsideration of efforts to prevent economic disasters leading to foreclosures, taking into account the nuanced recovery trajectories of different demographic groups. Ohlrogge emphasizes the importance of recognizing the disparate outcomes between Black and white Americans and underscores the broader societal implications, stating that finance is not solely a concern for those interested in monetary matters but has far-reaching impacts on social justice and environmental protection.
