America’s minorities, it seems, can’t catch a break when it comes to housing. Before the subprime boom, they were much less likely than their white counterparts to be able to get a mortgage. Then, when the subprime boom started, they were much more likely to be sold a predatory mortgage.
A new study by Douglas Massey and Jacob Rugh of Princeton does a great job of quantifying this effect and nailing it down. My colleague Nick Carey has a story about it, but you should read the study yourself: I’ve uploaded it here and embedded it below.
The study is pretty clear. The authors have built a model which explains foreclosure rates, using a large number of variables, including things like overbuilding rates and house-price appreciation as well as demographics including credit scores. And it turns out, after crunching the numbers and doing the regressions, that living in a racially-segregated area is an important predictive factor in terms of how likely you are to experience foreclosure:
Whether measured in terms of residential dissimilarity or spatial isolation, segregation of African Americans is a powerful and highly significant predictor of the number and rate of foreclosures across U.S. metropolitan areas. For instance, a .1 unit increase in black dissimilarity is associated with 37 percent more foreclosure actions and a 34 percent increase in the foreclosure rate.
(“Black dissimilarity,” here, is a measure, ranging from 0 to 1, of how black a neighborhood is compared to the country as a whole.)
To put it another way, an increase of one standard deviation in a neighborhood’s black dissimilarity increases the foreclosure rate by 1.68 percentage points — which is a very large amount, given that the overall foreclosure rate is 4.14%. To put those numbers in perspective, a one-standard-deviation increase in factors like housing starts or house-price appreciation or even unemployment fails to increase the foreclosure rate by even 1 percentage point.
The authors conclude:
By concentrating foreclosures in metropolitan areas with large racial differentials in subprime lending, segregation structured the causes of the crisis, as well as the geographic and social distribution of its costs, on the basis of race. Segregation therefore racialized and intensified the consequences of the American housing bubble.
It’s hard to read this without being reminded of this chart:
Obviously, there’s more going on in Detroit than just racial segregation and discrimination. But it’s surely an exacerbating factor.
If you’re a high-income Latino with a mortgage, you’re almost twice as likely to be facing foreclosure than a high-income non-Hispanic white person. And in general, the foreclosure crisis is hitting blacks and Latinos much harder than it is whites, according to a startling new report from the Center for Responsible Lending.
Overall, there have been 790 foreclosures per 10,000 loans to blacks, and 769 for Hispanics — compared to just 452 to non-Hispanic whites. And within every income group, the disparities are startling: here’s the chart.
The “Disparity Ratio” here is essentially the likelihood of being foreclosed upon, compared to the likelihood of a similar-income non-Hispanic white being foreclosed on. It’s interesting that the disparity ratio is pretty stable for blacks, but rises sharply with income for Latinos. I’ll hazard a guess and say that this probably has something to do with a lot of middle- and high-income Latinos in California and Arizona being sold subprime mortgages, even when they qualified for a prime loan.
Why would Latinos be more susceptible to being taken advantage of in that way than non-Hispanic whites? Now I’m really speculating, but it stands to reason that financial sophistication is a function not only of your income today but also of your family’s income when you were growing up. If rich Latinos are more likely to come from poor families than rich whites, then that might explain some of the disparity here.
Even so, it’s very depressing to see the results here. Already the median non-Hispanic white family reported $171,200 in net worth versus only $28,300 for non-white and Hispanic families, and this crisis is only making matters worse. The CRL reports:
The indirect losses in wealth that result from foreclosures as a result of depreciation to nearby properties will disproportionately impact communities of color. We estimate that, between 2009 and 2012, $193 billion and $180 billion, respectively, will have been drained from African-American and Latino communities in these indirect “spillover” losses alone.
Those are really big numbers. One might have hoped that blacks and Hispanics might have been less badly hit by the foreclosure crisis simply by dint of their much lower levels of homeownership. But it seems that isn’t the case.
Update: Barry Ritholtz reckons we might be seeing the effects of unemployment here, since unemployment, too, has hit blacks and Hispanics worse than whites. It’s a good point.
As someone who knows a fair amount about Felix the Cat, I can concur with Skip Gates that he is not and was not a caricature of African-Americans. I can also concur with Paul Krugman and James Fallows that it is by no means necessary that Felix be African-American for Niall Ferguson’s FT lede (“President Barack Obama reminds me of Felix the Cat. One of the best-loved cartoon characters of the 1920s, Felix was not only black. He was also very, very lucky”) to be utterly inappropriate and offensive.
Which leaves only one question: What did Ferguson elide, with an ellipsis, in the email from Gates? I can’t imagine that Gates let Ferguson off quite as easily as Ferguson suggests.