Post-Foreclosure Experience Of United States Households

In a recent study by the Federal Reserve Board of Governors, two authors examine the post-foreclosure experience of U.S. households. In a descriptive analysis, the authors find little evidence to confirm anecdotal suggestions that many people end up living in larger households in order to defray living expenses. Although the changing tenure status from owner-occupancy to renting increases the chance a post-foreclosure household will live in a multifamily structure, the majority of these households still live in single-family housing units. Also, the authors suggest that post-foreclosure individuals move to rental units in denser urban areas, but the new neighborhoods do not seem to be much less desirable.

The extended foreclosure process seems to allow many to stay in their homes long after the foreclosure starts. About half of individuals have not even moved two years after the foreclosure starts, suggesting that the foreclosure process is frequently never completed. Additionally, migration was less likely in judicial states and in those where there was rapid house price appreciation.

Only about 20 percent of post-foreclosure borrowers move far enough to participate in a different labor market. Thus, it appears that post-foreclosure migrants may choose a new location that allows them to stay in the same local job market. The authors find no evidence that post-foreclosure migrants are more likely to remain in the same school district or Census tract, so maintaining ties to a local school seems not to be important in the relocation decision.

Looking at the neighborhood characteristics, post-foreclosure individuals are more likely to move to denser areas with a lower homeownership rate. Their new neighborhoods also tend to have a higher fraction of female-headed households, smaller houses, a shorter average commute time, and lower income, although the magnitude of these differences is very small. On the other hand, the authors find little difference between the post-foreclosure and comparison groups in other measures of neighborhood affluence including educational attainment, racial and ethnic composition, house value, or rent.

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