Home Equity, Household Savings and Consumption

Posted: 23 Oct 2007

See all articles by John D. Benjamin

John D. Benjamin

American University - Kogod School of Business

Peter T. Chinloy

American University - Department of Finance and Real Estate

Abstract

The home-owning family's equity is a piggybank that can be broken open by borrowing. Each borrowing increases liabilities and cash equally, initially leaving net wealth unchanged. When those funds are spent and cash balances fall, consumption increases even as net wealth can decline. In a dynamic optimization, the marginal propensity to consume from net wealth is not always positive and can be positively correlated with housing debt.

Keywords: wealth, marginal propensity to consume, consumption, housing, home equity, piggybank

Suggested Citation

Benjamin, John D. and Chinloy, Peter, Home Equity, Household Savings and Consumption. Journal of Real Estate Finance and Economics, Vol. 37, No. 1, 2008, Available at SSRN: https://ssrn.com/abstract=1024011

John D. Benjamin (Contact Author)

American University - Kogod School of Business ( email )

4400 Massachusetts Avenue NW
Department of Finance
Washington, DC 20016
United States
(202) 885-1892 (Phone)
(202) 885-1946 (Fax)

Peter Chinloy

American University - Department of Finance and Real Estate ( email )

Kogod School of Business
4400 Massachusetts Ave., N.W.
Washington, DC 20016-8044
United States
202-885-1951 (Phone)
202-885-1992 (Fax)

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