Working Paper: NBER ID: w29306
Authors: Amir Kermani; Francis Wong
Abstract: We document the existence of a racial gap in realized housing returns that is an order of magnitude larger than disparities arising from housing costs alone, and is driven by differences in distressed home sales (i.e., foreclosures and short sales). Black and Hispanic homeowners are both more likely to experience a distressed sale and to live in neighborhoods where distressed sales erase more house value. However, absent financial distress, houses owned by minorities do not appreciate at substantially slower rates than houses owned by non-minorities. Racial differences in liquid wealth and income stability are important determinants of differences in distress.
Keywords: Housing Returns; Racial Disparities; Wealth Gap; Mortgage Modifications
JEL Codes: G5; G51; J15
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| mortgage modifications (G21) | housing returns (R31) |
| distressed sales (G33) | housing returns (R31) |
| illiquidity and income instability among minorities (J15) | financial distress (G33) |
| mortgage modifications (G21) | likelihood of distressed sale (G33) |
| housing returns (R31) | racial wealth gap (D31) |