The Impact of House Prices on Consumer Credit: Evidence from an Internet Bank

60 Pages Posted: 12 Aug 2012 Last revised: 24 Aug 2012

See all articles by Rodney Ramcharan

Rodney Ramcharan

University of Southern California, Marshall School of Business

Christopher Crowe

International Monetary Fund (IMF)

Multiple version iconThere are 2 versions of this paper

Date Written: August 12, 2012

Abstract

This paper shows that house price fluctuations can have a significant impact on credit availability. Data from Prosper.com, a peer to peer lending site that matches borrowers and lenders to provide unsecured consumer loans, indicate that home owners in states with declining house prices experience higher interest rates, greater credit rationing, and faster delinquency. We find especially large effects for subprime borrowers whose balance sheets are likely most exposed to asset price declines. This evidence suggests that asset price fluctuations can play an important role in determining credit conditions and are thus a potentially significant mechanism for propagating macroeconomic shocks.

Keywords: consumer credit, banking, house prices

JEL Classification: E44, G21

Suggested Citation

Ramcharan, Rodney and Crowe, Christopher, The Impact of House Prices on Consumer Credit: Evidence from an Internet Bank (August 12, 2012). Journal of Money, Credit, and Banking, Forthcoming. Available at SSRN: https://ssrn.com/abstract=2128238

Rodney Ramcharan (Contact Author)

University of Southern California, Marshall School of Business ( email )

2250 Alcazar Street
Los Angeles, CA 90089
United States

HOME PAGE: http://https://sites.google.com/site/rodneyramcharan/

Christopher Crowe

International Monetary Fund (IMF) ( email )

700 19th Street, N.W.
Washington, DC 20431
United States

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