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From Boom to Bust: Did the Financial Fragility of Homeowners Increase in an Era of Greater Financial Deregulation?

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  • Christian E. Weller
  • Kate Sabatini

Abstract

After 1995, the United States experienced housing and mortgage booms, fuelled by increased lending from less regulated institutions, such as hedge funds. At the micro level, the housing boom may have left families with more wealth, but the mortgage boom may have increased their financial vulnerability. Using the Federal Reserve’s Survey of Consumer Finances, we consider both wealth creation and a select number of financial vulnerability measures of homeowners. The data indicate that the housing boom was not only associated with larger house values, but also moderated wealth gains and substantially greater financial vulnerability of homeowners. Both trends were more pronounced among middleincome and Hispanic families, who saw larger wealth gains, but also greater increases in financial vulnerability than their counterparts. Given the breadth of the spread in homeowners’ financial vulnerability alongside sharply higher house prices, our results support the link between more deregulated financial markets and rising financial instability.

Suggested Citation

  • Christian E. Weller & Kate Sabatini, 2008. "From Boom to Bust: Did the Financial Fragility of Homeowners Increase in an Era of Greater Financial Deregulation?," Journal of Economic Issues, Taylor & Francis Journals, vol. 42(3), pages 607-632, September.
    • Handle: RePEc:mes:jeciss:v:42:y:2008:i:3:p:607-632
    DOI: 10.1080/00213624.2008.11507170
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    Cited by:

    1. Christian E. Weller, 2009. "Did Retirees Save Enough to Compensate for the Increase in Individual Risk Exposure?," Working Papers wp206, Political Economy Research Institute, University of Massachusetts at Amherst.
    2. Monica Hernandez, 2023. "An Unintended Consequence of Uncoordinated International Monetary Policy on Central America," International Journal of Political Economy, Taylor & Francis Journals, vol. 52(1), pages 88-103, January.
    3. Yun K. Kim & Mark Setterfield & Yuan Mei, 2014. "A theory of aggregate consumption," European Journal of Economics and Economic Policies: Intervention, Edward Elgar Publishing, vol. 11(1), pages 31-49, April.
    4. Timothy A. Wunder, 2016. "Setting a Principal to Interest Cap on the Issuance of Home Mortgages: a Proposed Change to Mortgage Underwriting Rules Designed to Control Housing Price Inflation," World Economic Review, World Economics Association, vol. 2016(6), pages 1-86, February.

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