Does Homeownership Matter? The Long-Term Consequences of Losing a House during the Great Recession

This paper examines the long-term impact of keeping versus losing one’s home following a mortgage delinquency in the aftermath of the Great Recession, studying the trajectory of homeownership, consumption, and financial well-being over the subsequent decade. Our research design leverages the substantial number of households that experienced temporary income shocks and the turbulence of the foreclosure crisis — we focus on individuals who were seriously delinquent on their mortgages and compare outcomes between those who received a mortgage modification and those who did not. These two groups exhibit highly similar pre-trends in financial outcomes prior and during the Great Recession but diverge by 36 percentage points in their short-term likelihood of retaining homeownership. More than half of this disparity persists nearly a decade later, translating into an average capital gain of $83,000 in the housing market. Despite these significant differences in homeownership and wealth accumulation, keeping a home does not appear to influence the path of creditworthiness, proxies for consumption, and the income rank of one's residential neighborhood.