In between 1983 to 2004, (i) U.S. average consumer debt, mostly collateral backed, has increased from 124 percent to 206 percent of average labor income; (ii) cross-sectional earnings inequality, as measured by the Gini index, has increased; (iii) housing downpayment requirements have decreased; (iv) the homeownership rate among the 20-35 and 60-75 age groups have increased; (v) and housing mobility rates have decreased. I link those facts through a general equilibrium, overlapping- generations model with a liquid nancial asset and both housing and renting markets. Households access debt through collateralized lending. I show that if permanent shocks are the driving force behind earnings inequality then the precautionary saving motive is weak and households are more often at the borrowing limit. Relaxing the collateral constraints then, increases households' access to mortgage debt and their homeownership rate. High earnings persistence also reduces the need to adjust the housing stock to self-insure against variability in non-durable consumption, thus lowering housing mobility rates.
Facultad de Ciencias Económicas y Empresariales · C/ Francisco Tomás y Valiente, 5 · Universidad Autónoma de Madrid · 28049 Madrid · España
