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Housing Wealth Reallocation Between Subprime and Prime Borrowers During Recessions

Ayse Sapci () and Nam Vu ()
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Nam Vu: Department of Economics, Colgate University, http://www.colgate.edu/academics/departments/economics

No 2017-03, Working Papers from Department of Economics, Colgate University

Abstract: We study a general equilibrium model with a housing market to understand the role of credit access among borrowers and show that an adverse financial shock can increase the asymmetry in the housing wealth distribution of subprime and prime borrowers. Households with better credit access can take advantage of the low housing prices during recessions, especially when the subprimers are previously subjected to lax credit conditions. Our model is consistent with the data since the late 1980s, showing that the homeownership rates of the two groups move in opposite directions during turmoils as prime borrowers are more likely to invest in the housingmarket during recessions.

New Economics Papers: this item is included in nep-ban, nep-dge and nep-ure
Date: 2017-03-01, Revised 2017-09-19
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