How Much are Car Purchases Driven by Home Equity Withdrawal?

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