The Microdynamics of the Household Balance Sheet in a Boom-Bust Housing Cycle
Office of the Comptroller of the Currency (OCC)
Office of the Comptroller of the Currency
May 12, 2014
In this paper we provide what we believe to be the first evidence on the nature of leveraging and deleveraging behavior through an analysis of both net and gross credit flows at the consumer level. In the aggregate, we find that at all points in the economic cycle, there is a significant amount of simultaneous debt creation and debt destruction. The size of these credit flows varies significantly across housing markets.
In a regression analysis of consumer-level credit flows, we find an increase in housing values results in a net increase in leverage, but only in states with significant price appreciation. Consumers in low-appreciation states appear to have responded much differently to changes in housing values; whereas such consumers do appear to reshuffle debt across different credit instruments in response to housing price shocks, this reshuffling has only a negligible impact on net leverage.
Number of Pages in PDF File: 36
Keywords: Gross Credit Flows, Retail Credit, Home Equity
JEL Classification: D1, G1, R2working papers series
Date posted: May 14, 2014
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