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

43 Pages Posted: 27 Dec 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: May 30, 2012

Abstract

This paper shows that house price fluctuations can have a significant impact on credit markets well beyond the mortgage segment. Using new data from Prosper.com, a peer to peer lending site that matches borrowers and lenders to provide unsecured consumer loans, we find evidence that home owners in states with declining house prices face higher interest rates and greater rationing of credit, while also becoming delinquent faster. Investigating the mechanism, we find separate supply and demand effects, and especially large effects for those subprime borrowers whose balance sheets are likely to be most exposed to asset price declines. This evidence suggests that asset price fluctuations can play an important part 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 (May 30, 2012). FEDS Working Paper No. 2012-60. Available at SSRN: https://ssrn.com/abstract=2194038 or http://dx.doi.org/10.2139/ssrn.2194038

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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