Linking Asset Values to Financing: The Role of Small-Dollar Mortgages in Cash vs. Mortgage Property Price Disparities

76 Pages Posted: 25 Oct 2024

See all articles by Brent W. Ambrose

Brent W. Ambrose

Pennsylvania State University - Department of Insurance & Real Estate

Liu Ee Chia

Pennsylvania State University - Smeal College of Business

Date Written: August 01, 2024

Abstract

All-cash transactions and their associated price discounts in the housing market have increased following the Great Financial Crisis. We document that cash discounts vary substantially across property price levels, with the largest discounts occurring in the lowest-priced properties, and explore the influence of credit supply on these discounts. Using the expansion of enforcement actions on mortgage fraud post-GFC as an instrument for local small credit supply, we find that a one-percentage-point decrease in small loan approvals increases cash discounts by 8.4%. The impact is larger in low-cost houses and disadvantaged communities. The results point to the cause for the observed overall decrease in relative prices for low-cost houses, highlighting the importance of small loan availability for wealth-building through homeownership among lower-income households.

Suggested Citation

Ambrose, Brent W. and Chia, Liu Ee, Linking Asset Values to Financing: The Role of Small-Dollar Mortgages in Cash vs. Mortgage Property Price Disparities (August 01, 2024). Available at SSRN: https://ssrn.com/abstract=4959029 or http://dx.doi.org/10.2139/ssrn.4959029

Brent W. Ambrose

Pennsylvania State University - Department of Insurance & Real Estate ( email )

Smeal College of Business,
Penn State University
University Park, PA US-0-PA 16802
United States
8148670066 (Phone)

HOME PAGE: http://https://sites.psu.edu/brentwambrose/

Liu Ee Chia (Contact Author)

Pennsylvania State University - Smeal College of Business ( email )

University Park, PA 16802
United States

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