MBA: Post-Recession homeownership decline widened wealth gap

Could history repeat itself after the COVID-19 crisis?

The Great Recession and the ensuing years saw the wealth inequality gap among American households widen greatly, due in large part to a decline in both homeownership and home values, according to a new study from the Mortgage Bankers Association (MBA).

The organization’s Research Institute for Housing America (RIHA) released a research report, “The Distribution of Wealth Since the Great Recession,” revealing the findings. Report author John C. Weicher, director of the Center for Housing and Financial Markets at the Hudson Institute, noted that home prices plummeted through 2012, while the homeownership rate backtracked 4.5% — a share equivalent to more than 6 million families — from 2007 to 2015.

With retirement account assets and home equity serving as the primary sources of wealth for most middle-class families, Weicher said that those two big declines both led to a massive dip in median real household net worth. That figure dropped from $140,000 in 2007 to $97,000 in 2016, a decrease of 30%.

“The typical household by 2016 was wealthier than it was in 2013, but significantly poorer in comparison to its situation in 2007,” Weicher explained. “These findings offer solid evidence as to why over half of Americans have consistently expressed in countless surveys that the country is not moving in the right direction. Middle-class households did not fully recover from the financial crisis, and the poor saw their net worth turn negative and stay negative.”

While the Great Recession affected everybody, the rich saw less impact. From 2007 to 2010, total real wealth decreased by 14%. Over that same timeframe, the total net worth of the rich fell by 11%, while the total net worth of the middle class dropped by 20%. And as Weicher said, the debts of the poor grew by 60%, leaving them collectively with a negative net worth.

Then, when the recovery began, the top tier of wealth holders further gained advantage. While the total net worth of Americans rose by approximately 4% from 2010 to 2013, both mean and median net worth still declined. Meanwhile, over 90% of the net worth increase was accumulated by the rich, with what was left over going to the middle class. Poor households saw their negative net worth of $322 billion fall further in the red by another $18 billion.

That fall was exacerbated by the housing situation among poor households. The homeownership rate among the poor ebbed from 23% in 2010 to 20% in 2013, and negative equity was on the rise. About 48.4% of poor owners were underwater in 2013, up from 47.2% in 2010.

From 2013 onward, the top-heavy gain in net worth continued over the next few years. Total wealth growth accelerated during this time, up by $20 trillion between 2013 and 2016. A significant share of that increase came due to the prices of stocks and homes rising; consequently, rich households received $16.9 trillion (85%) of the total wealth increase. Middle-wealth households accrued $3.2 trillion of the wealth growth (15%), while the poor gained just $100 billion.

As of 2016, the rich had $67.0 trillion in total net wealth, the middle class had $20.2 trillion, and the poor continued to hold a negative net wealth of $290 billion.

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“The rich recovered faster and their share of wealth increased from 71% in 2007 to 77% in 2016,” Weicher said. “The result is a less equal America, and many families that fell behind have reasons to worry as they cope with the pandemic and move closer to retirement.”

It’s a scenario, according to Weicher, that could repeat itself with the COVID-19 crisis still ravaging the economy, particularly on the lower end.

“Inequality may have improved in recent years because of the increase in home prices, the rising homeownership rate, the stock market’s steady ascent, and recent policy changes that have reduced tax burdens and made it easier to save for retirement,” Weicher said. “Unfortunately, the pandemic has likely offset these changes – and especially for lower-income individuals working in jobs adversely impacted in the last nine months.”

“Dr. Weicher’s study gives a comprehensive look at the wealth disparities and recovery patterns that rich, middle-class and poor households experienced in the years after the Great Recession,” said Edward Seiler, MBA associate vice president of housing economics and RIHA executive director. “Fast-forward to 2020, and much of the financial distress caused by the pandemic is again being felt by those with less wealth. Although the homeownership rate is lower today, the good news is that those who do own have likely seen their wealth increase from the steady rise in home values in the past several years.”

But, Seiler added, “If the pandemic lasts well into 2021 and millions continue to stay unemployed, there’s real risk that inequality will increase.”

The MBA’s report was derived from data from the Federal Reserve Board’s survey of Consumer Finances. For the purposes of the study, the top 10% of households by net wealth are categorized as rich, the following 60% are middle class, and bottom 30% are classified as poor.


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