Why Did Young Families Lose So Much Wealth During the Crisis? The Role of Homeownership

Abstract

The authors use the Federal Reserve’s Survey of Consumer Finances to document a boom in home ownership and mortgage borrowing among young families in the years leading up to the recent financial crisis. Many young families lost more of their wealth during the downturn than middle-aged and older families. The authors find that about three-quarters of the decline in the average young family’s wealth between 2007 and 2010 was due to its exposure to residential real estate. For middle-aged and older families, housing losses contributed about 53 percent and 40 percent of the total decline in wealth, respectively. Regression evidence suggests that young families’ wealth, on average, was unusually highly concentrated in housing and these families’ debt burdens were extremely high at the peak of the boom. (JEL D14, D31)