A little earlier today James posted on the problems that subprime lenders are experiencing and there was a comment on that post to the effect that people who bought older homes were more likely to be subprime borrowers than those who bought McMansions and that got me to thinking. That’s not my intuition.
My intuition is that the phenomenon of the subprime loan is related to the rapid rise in housing prices that haven’t been matched by comparable rises in money wages. The implication is that people are paying a lot more of their incomes in mortgage payments than once they did. That, in turn, would be more prevalent in parts of the country where there’s been more speculative price increases than in areas that have experienced less of a bubble. More where you are than who you are.
So, here are my questions:
- Who are the people taking out subprime loans?
- What kinds of houses are they buying with them?
I don’t have any answers to these questions but I’m starting to research them. Any suggestions would be greatfully received.
UPDATE (James Joyner): Arnold Kling weighs in: “My guess is that the typical defaulter today is not some prudent individual who happened to buy a home that strains his paycheck. Instead, my guess is that the typical defaulter is somebody who is poor at managing spending and credit.”