Borrowing Constraints during the Housing Bubble

29 Pages Posted: 7 Mar 2013 Last revised: 21 Dec 2013

See all articles by Irina Barakova

Irina Barakova

Government of the United States of America - Office of the Comptroller of the Currency (OCC)

Paul Calem

Board of Governors of the Federal Reserve System

Susan M. Wachter

University of Pennsylvania - Wharton School, Department of Real Estate ; University of Pennsylvania - Finance Department

Date Written: December 20, 2013

Abstract

The impact of borrowing constraints on homeownership has been well established in the literature. Wealth is most likely to restrict homeownership followed by credit and income. Using recent movers from the 1979 National Longitudinal Survey of Youth and borrowing constraint definitions commonly used in the literature, we examine the impact of these constraints on the probability of homeownership during the housing market boom between 2003 and 2007. We show that whereas the pool of financially constrained households expanded, the marginal impact of borrowing constraints associated with income and credit quality declined during this period. The constraint associated with wealth, however, continued to have a negative impact on homeownership status, all else equal. The fact that lending standards became less strict is accepted; however the impact of this on homeownership has not been previously studied. Here we find that less restrictive underwriting does appear to have reduced the impact of income and credit quality on homeownership but the impact of the wealth constraint persists.

Keywords: tenure choice, borrowing constraint, credit constraint, mortgage supply, homeownership, credit bubble

JEL Classification: G01, G21, G28, R21, R31, R38

Suggested Citation

Barakova, Irina and Calem, Paul and Wachter, Susan M., Borrowing Constraints during the Housing Bubble (December 20, 2013). Available at SSRN: https://ssrn.com/abstract=2229571 or http://dx.doi.org/10.2139/ssrn.2229571

Irina Barakova

Government of the United States of America - Office of the Comptroller of the Currency (OCC) ( email )

400 7th Street SW
Washington, DC 20219
United States

Paul Calem

Board of Governors of the Federal Reserve System ( email )

20th Street and Constitution Avenue NW
Washington, DC 20551
United States

Susan M. Wachter (Contact Author)

University of Pennsylvania - Wharton School, Department of Real Estate ( email )

The Wharton School
3620 Locust Walk
Philadelphia, PA 19104-6330
United States
215-898-6355 (Phone)

HOME PAGE: http://real.wharton.upenn.edu/~wachter/index.html

University of Pennsylvania - Finance Department ( email )

The Wharton School
3620 Locust Walk
Philadelphia, PA 19104
United States

HOME PAGE: http://real.wharton.upenn.edu/~wachter/index.html

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