Household Financial Decision-Making After Natural Disasters: Evidence from Hurricane Harvey

45 Pages Posted: 1 Oct 2021

See all articles by Alejandro del Valle

Alejandro del Valle

Georgia State University

Therese C. Scharlemann

Board of Governors of the Federal Reserve System

Stephen H. Shore

Georgia State University

Date Written: September 20, 2021

Abstract

Hurricane Harvey brought more than four feet of rainfall to the Houston area in August 2017, leading to substantial flooding in many areas. We merge data on credit card accounts, mortgages, and flooding depth at the ZIP+4 location level to compare the household credit response to Hurricane Harvey in parts of Houston that were more and less affected by flooding. We find that hurricane-affected households use marginal credit in a price-sensitive manner, and that credit substitutes for physical hardening. We show that flood-induced borrowing occurred at interest rates well below standard credit card rates, and that new balances were paid off quickly. Revolving balances on standard credit cards were approximately unaffected, but flooding caused a dramatic increase in originations of cards with promotional interest rates. While borrowers in all areas took advantage of special mortgage forbearance offers, take-up increased with flooding intensity. Conditional on flooding, households in floodplains -- and particularly in houses subject by code to physical hardening -- drew far less new credit.

Keywords: Household Finance, Borrowing, Forberance, Hurricanes, Natural Disasters

JEL Classification: Q54,D14,G22,H84

Suggested Citation

del Valle, Alejandro and Scharlemann, Therese C. and Shore, Stephen H., Household Financial Decision-Making After Natural Disasters: Evidence from Hurricane Harvey (September 20, 2021). Available at SSRN: https://ssrn.com/abstract=3929901 or http://dx.doi.org/10.2139/ssrn.3929901

Alejandro Del Valle (Contact Author)

Georgia State University ( email )

35 Broad Street
Atlanta, GA 30303-3083
United States

Therese C. Scharlemann

Board of Governors of the Federal Reserve System ( email )

20th Street and Constitution Avenue NW
Washington, DC 20551
United States

Stephen H. Shore

Georgia State University ( email )

35 Broad Street
11th Floor
Atlanta, GA 30303-3083
United States

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