The Impact of House Prices on Consumer Credit: Evidence from an Internet Bank
60 Pages Posted: 12 Aug 2012 Last revised: 24 Aug 2012
Date Written: August 12, 2012
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: Suggested Citation