Johns Hopkins University graphic

Seven years after the booming U.S. real estate market crashed and threw the nation into the worst economic crisis since the Great Depression, researchers at Johns Hopkins University have looked at how the turbulent market of the 2000s affected black families who bought a house for the first time. They reached two conclusions -- one of little surprise, the other stunning.

Of little surprise: During the housing bust, between 2007 and 2009, black first-time home-buyers saw their net worth drop by 43 percent. White first-time home-buyers did “better,” losing 33 percent of their wealth during the meltdown. “Over the longer-run,” the Hopkins report says, “both races suffered the effects of the Great Recession, but in virtually all cases, blacks lost more both in absolute dollar terms and as a greater share of their net worth compared with whites.”

Now here’s the stunning part of the Hopkins research: During the housing boom, between 2005 and 2007, while white first-time homebuyers saw their net worth grow by 50 percent, blacks saw theirs drop by an almost equal amount -- 47 percent.
Wondering how this could be?

The lead researcher, Sandra Newman, professor of public policy studies, was also surprised that such economic disparity would hold even through one of the hottest housing markets in history. “Stunning” was the word Hopkins researcher C. Scott Holupka used to describe the finding.

The narrative of American housing since the early 2000s would seem simple enough. We had that crazy housing boom, a great time to be a seller as prices went off the charts, and supposedly a good time to be getting into the market. Instead of being a slow and steady investment, a house suddenly seemed to be the quickest ticket up the socioeconomic ladder for low- and moderate-income families. People were encouraged to stop renting and invest their money in a house. But then came the bust, and a lot of those gains disappeared.
Newman’s 48-page report, published last month by the journal Real Estate Economics, says that, for blacks who got into a house for the first time, the boom was a bust.
“Virtually all reports about the effects of the tumultuous 2000s on homeowners [provide] statistics on the aggregate of whites and blacks combined,” says Newman, who serves as director of the Hopkins Center on Housing, Neighborhoods and Communities. “Thus, the story has been gains during the boom and losses during the bust. But this is an accurate story line only for whites. Lurking within these aggregate statistics is a different story for blacks, who lost regardless of the macroeconomic climate.”
A 2013 report from Brandeis University looked at how the recession contributed to the widening racial wealth gap. “Overall,” it concluded, “half the collective wealth of African-American families was stripped away during the Great Recession due to the dominant role of home equity in their wealth portfolios and the prevalence of predatory high-risk loans in communities of color.”
Newman and Holupka drilled into new ground -- national data specifically on first-time home-buyers. They tapped the Panel Study of Income Dynamics, an ongoing, comprehensive study of thousands of American families across generations, based at the University of Michigan. Thousands of peer-reviewed studies, including the one I cited from Brandeis, have used the PSID.
Newman’s report shows that, while timing is a key ingredient in purchasing a first home, that formula worked for whites better than it did for blacks during the boom because of another recurring rule of real estate: location.
“In real estate, two themes loom large,” said Newman. “‘Location, location, location,’ and ‘Timing is everything.’ Our analysis shows that, for first-time homebuyers in the 2000s, ‘timing’ was the story for whites, and ‘location’ was the story for blacks.”
And so the real narrative of housing in the 2000s runs, like so many aspects of American society, along the racial dividing line -- how we live, our segregated communities -- and through the gaping income disparities that have fueled structural inequality for decades.
The neighborhoods in which blacks bought their first homes were predominantly black, with lower prices and lower rates of appreciation. “Across the decade,” the report says, “blacks purchased homes in more disadvantaged neighborhoods than whites, and in neighborhoods that continued to deteriorate over the decade.”
Most black homebuyers, Newman calculated and concluded, would have been better off had they remained renters; it will take them decades to recover from their losses.

"The 2000s represented the best of times and the worst of times for those entering the homeownership market," the report concludes. "That low- and moderate-income blacks experienced losses in net worth even when their purchase timing was impeccable gives one pause about homeownership per se as a universal asset-building strategy."