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Housing Wealth Reallocation Between Subprime and Prime Borrowers During Recessions

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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.

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  • Sapci, Ayse & Vu, Nam, 2017. "Housing Wealth Reallocation Between Subprime and Prime Borrowers During Recessions," Working Papers 2017-03, Department of Economics, Colgate University, revised 19 Sep 2017.
    • Handle: RePEc:cgt:wpaper:2017-03
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