Subprime Mortgages and Housing Price Variations in the Philadelphia Metropolitan Area

Abstract

Over the past decade, both the housing market and the subprime mortgage market in the United States experienced a rise and fall. To explore whether subprime lending has increased or decreased social inequality between subprime neighborhoods and nonsubprime neighborhoods, this article examines the relationship between subprime mortgages and housing price variations within the Philadelphia Metropolitan Statistical Area (MSA), using a global, ordinary least squares (OLS) method and a local, geographically weighted regression (GWR) method. The results show that neighborhoods obtaining disproportionate numbers of subprime mortgages enjoyed lower housing price appreciation rates than other neighborhoods during the housing boom era but suffered higher housing price depreciation rates during the housing bust era, after controlling for other variables. The results also show that the association between housing price variations and explanatory variables differs across geographic submarkets. The empirical evidence draws some policy implications, such as rethinking the homeownership policy through expanding subprime lending, as well as promoting place-based housing policymaking. Combining OLS and GWR, this article improves the understanding of how subprime lending exacerbated social inequality at the neighborhood level.