New Evidence on Housing Wealth and Consumption Channels

Bing Zhu (), Lingxiao Li (), David H. Downs () and Steffen Sebastian ()
Additional contact information
Bing Zhu: University of Reading
Lingxiao Li: California State University, Fullerton
David H. Downs: Virginia Commonwealth University
Steffen Sebastian: University of Regensburg

The Journal of Real Estate Finance and Economics, 2019, vol. 58, issue 1, No 3, 79 pages

Abstract: Abstract This paper provides new evidence on the effect of housing wealth on consumption by focusing on the impact of home-equity extraction. We develop a household consumption decision model to illustrate the differential effect of home-equity extraction, relative to net home equity, on consumption. The home-equity extraction channel is also shown to vary with household-level borrowing constraints. Based on U.S. household survey data and an instrumental-variables approach, our empirical results validate model predictions. We find that the marginal propensity to consume is two times higher for the home-equity extraction channel relative to the conventional housing wealth effect. The consumption effect of home-equity extraction is more than 2.5 times greater for liquidity-constrained households than for unconstrained households. These results are even more pronounced in the case of durable goods consumption for constrained borrowers.

Keywords: Consumption; Housing wealth; Home-equity credit; Liquidity constraint (search for similar items in EconPapers)
JEL-codes: E21 G21 R22 (search for similar items in EconPapers)
Date: 2019
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Citations: View citations in EconPapers (12)

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DOI: 10.1007/s11146-017-9638-8

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