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Consumer borrowing behavior of U.S. homeowners: a study by race
| Title: | Consumer borrowing behavior of U.S. homeowners: a study by race |
| Author: | Chaudhuri, Indrashis |
| Description: | The dissertation is aimed at developing an understanding of the consumer borrowing behavior of U.S. homeowners who experienced house price shocks. The research focuses on the differences in behavior comparing non-Hispanic whites and African-Americans. The first essay develops a theoretical intuition as to how homeowners experiencing housing capital gains should respond. It is shown that liquidity constrained households and households that smooth consumption over time are the likely candidates to react strongly to any housing wealth windfall. In addition, collateralized borrowing should be the instrument of choice for cashing out equity from homes and spending on consumer good. An interesting finding is that though white homeowners seemed to have adjusted their consumption level upwards in response to increased home equity, but they have not made any significant attempt to bring down their level of high interest unsecured debt. In the second essay of the dissertation, the focus is on the behavior of African-American homeowners. The instrumental variable regression results on a sample of black homeowners from the three recent survey years of SCF find that the consumer credit behavior of homeowners differ by race in various consumer credit markets and blacks are not behaving in line with the theoretical predictions. The chapter also finds some evidence that financially constrained blacks refinance to only cash out equity where as constrained whites achieve the dual objectives of lowering interest rate and cashing out equity from refinancing. This chapter uses data from a 2005 survey sponsored by Fannie Mae of 501 homeowners divided equally across African-Americans and non-Hispanic whites. In this chapter the new data has been utilized to test alternative hypotheses on the factors generating disparate financial behavior across non-Hispanic White homeowners and their African-American counterparts. Differential credit profile across the homeowners in the two races, differential exposure to discrimination or perception of existence of discrimination in the real estate market and differential tax itemization tendency across the homeowners in the two races turned out to be the important factors driving the disparate borrowing behavior however there was no substantial evidence of racial difference in financial sophistication. |
| Permanent Link: |
http://rave.ohiolink.edu/etdc/view?acc_num=osu1188970616
http://hdl.handle.net/2374.OX/4863 |
| Date: | 2007 |
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