Post-Foreclosure Trajectories in the American Rental Market: Focus on the Trade-Offs between Neighborhood and Housing Outcomes

Abstract

This study investigates foreclosed American households’ housing and neighborhood trajectories, as they integrate into the rental sector, with a particular focus on the trade-off between neighborhood quality and housing consumption. Using Panel Study of Income Dynamics and a unique methodological approach, we compare their trajectories with those of renters who have not experienced foreclosure. Our results reveal that foreclosed households do not necessarily relocate to neighborhoods with higher poverty rates or greater racial segregation. Regarding housing outcomes, foreclosed households adjust their housing expenditures to levels similar to those of non-foreclosed renters during their transition to the rental market. Foreclosed households at less than 200% and more than 350% of the poverty line show a sharp increase in overcrowding. Our joint outcome analysis reveals that foreclosed households consistently prioritize reducing housing costs while placing considerable importance on neighborhood quality. Moreover, they were willing to accept overcrowded conditions to maintain neighborhood standards, which is rarely observed in comparable renter households. Our findings imply that policymakers should recognize foreclosed households’ unique circumstances and strategies. Rather than prioritizing foreclosed household policies over those for general renters, affordable housing options should be developed, alleviating overcrowding among foreclosed households in the rental market.

Keywords: Foreclosure, housing consumption, neighborhood quality, rental market, racial minority, overcrowding