How Much are Car Purchases Driven by Home Equity Withdrawal?
41 Pages Posted: 2 Dec 2015 Last revised: 29 Apr 2020
Date Written: December, 2015
Previous research indicates that changes in housing wealth affect consumer spending on cars. We find that home equity extraction plays only a small role in this relationship. Consumers rarely use funds from equity extraction to purchase a car directly, even during the mid-2000s housing boom; this finding holds across three nationally representative household surveys. We find in credit bureau data that equity extraction does lead to a statistically significant increase in auto loan originations, consistent with equity extraction easing borrowing constraints in the auto loan market. This channel, though, accounts for only a tiny share of overall car purchases.
Keywords: Auto loans, Auto sales, cash-out refinancing, Home equity, Home equity lines of credit, Mortgage refinancing, Motor vehicles
JEL Classification: D12, D14, E21, G21
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