Abstract

http://ssrn.com/abstract=1459584
 
 

References (35)



 
 

Citations (58)



 


 



House Prices, Home Equity-Based Borrowing, and the U.S. Household Leverage Crisis


Atif R. Mian


Princeton University - Department of Economics; Princeton University - Woodrow Wilson School of Public and International Affairs; NBER

Amir Sufi


University of Chicago - Booth School of Business; NBER

August 2009

NBER Working Paper No. w15283

Abstract:     
Using individual-level data on homeowner debt and defaults from 1997 to 2008, we show that borrowing against the increase in home equity by existing homeowners is responsible for a significant fraction of both the sharp rise in U.S. household leverage from 2002 to 2006 and the increase in defaults from 2006 to 2008. Employing land topology-based housing supply elasticity as an instrument for house price growth, we estimate that the average homeowner extracts 25 to 30 cents for every dollar increase in home equity. Money extracted from increased home equity is not used to purchase new real estate or pay down high credit card balances, which suggests that borrowed funds may be used for real outlays (i.e., consumption or home improvement). Home equity-based borrowing is stronger for younger households, households with low credit scores, and households with high initial credit card utilization rates. Homeowners in high house price appreciation areas experience a relative decline in default rates from 2002 to 2006 as they borrow heavily against their home equity, but experience very high default rates from 2006 to 2008. Our estimates suggest that home equity-based borrowing is equal to 2.8% of GDP every year from 2002 to 2006, and accounts for at least 34% of new defaults from 2006 to 2008.

Number of Pages in PDF File: 55

working papers series


Download This Paper

Date posted: August 25, 2009  

Suggested Citation

Mian, Atif R. and Sufi, Amir, House Prices, Home Equity-Based Borrowing, and the U.S. Household Leverage Crisis (August 2009). NBER Working Paper No. w15283. Available at SSRN: http://ssrn.com/abstract=1459584

Contact Information

Atif R. Mian (Contact Author)
Princeton University - Department of Economics ( email )
Princeton, NJ 08544-1021
United States
Princeton University - Woodrow Wilson School of Public and International Affairs ( email )
Princeton University
Princeton, NJ 08544-1021
United States
NBER
1050 Massachusetts Avenue
Cambridge, MA 02138
United States
Amir Sufi
University of Chicago - Booth School of Business ( email )
5807 S. Woodlawn Avenue
Chicago, IL 60637
United States
NBER
1050 Massachusetts Avenue
Cambridge, MA 02138
United States
Feedback to SSRN


Paper statistics
Abstract Views: 602
Downloads: 36
References:  35
Citations:  58

© 2014 Social Science Electronic Publishing, Inc. All Rights Reserved.  FAQ   Terms of Use   Privacy Policy   Copyright   Contact Us
This page was processed by apollo5 in 0.250 seconds