Linking Asset Values to Financing: The Role of Small-Dollar Mortgages in Cash vs. Mortgage Property Price Disparities
Research Poster Social & Behavioral Sciences 2025 Graduate ExhibitionPresentation by Liu Ee Chia
Exhibition Number 147
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
Importance
This research highlights the critical role of small-dollar mortgages in shaping housing market dynamics, particularly for lower-cost properties. While existing studies attribute cash discounts in real estate to market frictions, we identify supply constraints of small credit as a key driver. Using mortgage approval and transaction data, we demonstrate that a reduction in small-dollar mortgage supply significantly increases price discounts for cash-financed properties, disproportionately affecting disadvantaged communities. Our findings offer valuable insights for policymakers and financial institutions seeking to enhance credit access, reduce housing market disparities, and support wealth-building opportunities for lower-income households. This study also contributes to the broader literature on financial regulation by uncovering the unintended consequences of post-crisis mortgage fraud enforcement on housing affordability.
DEI Statement
My research highlights the financial barriers that disproportionately affect lower-income and minority households in the housing market. By examining how the tightening of small-dollar mortgages exacerbates price disparities in low-cost properties, I provide insights into systemic inequalities that limit wealth-building opportunities for underserved communities. The findings emphasize the critical role of equitable credit access in fostering homeownership and reducing economic disparities. Through rigorous empirical analysis, the research aims to inform policies that promote financial inclusion and sustainable economic mobility, ensuring that historically marginalized groups are not excluded from achieving social stability and wealth building through homeownership.