Housing Wealth Reallocation between Subprime and Prime Borrowers during Recessions

79 Pages Posted: 18 Feb 2021

See all articles by Ayse Sapci

Ayse Sapci

Utah State University

Nam Vu

Miami University

Date Written: December 21, 2020

Abstract

The Survey of Consumer Finances indicates that, unlike subprime borrowers, prime borrowers are more likely to own investment homes during recessions than during recoveries. Drawing on this empirical fact, we present and estimate a dynamic stochastic general equilibrium model that distinguishes between borrowers through their credit access. We find that the relative ease of credit access among borrowers explains the divergence in investment homeownership seen in the data. This divergence is amplified when subprime borrowers are subject to lax credit conditions prior to a financial shock or when the nominal interest rate is constrained at the zero lower bound. An expansionary monetary policy helps bridge this gap across borrowers.

Keywords: housing investment, credit access, subprime borrowers, prime borrowers

JEL Classification: E130, E210, E430, E440, G210, R210

Suggested Citation

Sapci, Ayse and Vu, Nam, Housing Wealth Reallocation between Subprime and Prime Borrowers during Recessions (December 21, 2020). Available at SSRN: https://ssrn.com/abstract=3752511 or http://dx.doi.org/10.2139/ssrn.3752511

Ayse Sapci (Contact Author)

Utah State University ( email )

Logan, UT 84322
United States

Nam Vu

Miami University ( email )

800 E High St
Oxford, OH 45056
United States

HOME PAGE: http://www.namtvu.com

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