How Much are Car Purchases Driven by Home Equity Withdrawal?

41 Pages Posted: 2 Dec 2015 Last revised: 29 Apr 2020

See all articles by Brett McCully

Brett McCully

University of California, Los Angeles (UCLA) - Department of Economics

Karen M. Pence

Board of Governors of the Federal Reserve System

Daniel J. Vine

Board of Governors of the Federal Reserve System

Date Written: December, 2015

Abstract

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

Suggested Citation

McCully, Brett and Pence, Karen M. and Vine, Daniel J., How Much are Car Purchases Driven by Home Equity Withdrawal? (December, 2015). FEDS Working Paper No. 2015-106, Available at SSRN: https://ssrn.com/abstract=2698048 or http://dx.doi.org/10.17016/FEDS.2015.106r1

Brett McCully (Contact Author)

University of California, Los Angeles (UCLA) - Department of Economics ( email )

8283 Bunche Hall
Los Angeles, CA 90095-1477
United States

Karen M. Pence

Board of Governors of the Federal Reserve System ( email )

20th Street and Constitution Avenue NW
Washington, DC 20551
United States
202-452-2342 (Phone)
202-728-5887 (Fax)

Daniel J. Vine

Board of Governors of the Federal Reserve System ( email )

20th and C Streets, NW
Mail Stop 82
Washington, DC 20551
United States

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