Liquidity Constraints in the U.S. Housing Market

Corina Boar, Denis Gorea and Virgiliu Midrigan

No 23345, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: We study the severity of liquidity constraints in the U.S. housing market using a life-cycle model with uninsurable idiosyncratic risks in which houses are illiquid, but agents can extract home equity by refinancing their mortgages. The model implies that four-fifths of homeowners are liquidity constrained and willing to pay an average of 13 cents to extract an additional dollar of liquidity from their home. Most homeowners value liquidity for precautionary reasons, anticipating the possibility of income declines and the need to make mortgage payments. The model reproduces well the observed response of consumption to tax rebates and mortgage relief programs and predicts large welfare gains from policies aimed at providing temporary liquidity relief to homeowners.

JEL-codes: E21 E30 (search for similar items in EconPapers)
Date: 2017-04
New Economics Papers: this item is included in nep-dge, nep-mac and nep-ure
Note: EFG ME
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Citations: View citations in EconPapers (7)

Published as Corina Boar & Denis Gorea & Virgiliu Midrigan, 2022. "Liquidity Constraints in the U.S. Housing Market," The Review of Economic Studies, vol 89(3), pages 1120-1154.

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Related works:
Journal Article: Liquidity Constraints in the U.S. Housing Market (2022)
Working Paper: Liquidity Constraints in the U.S. Housing Market (2017)
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