 Did easy credit lead to economic peril?: home equity borrowing and household behavior in the early 2000sNo 09-7, Public Policy Discussion Paper from Federal Reserve Bank of Boston Abstract: Using data from the Panel Study of Income Dynamics, this paper examines how households' home equity extraction during 2001-to-2003 and 2003-to-2005 affected their spending and saving behavior. The results show that a one-dollar increase in equity extraction led to ninety-five or ninety-eight cents higher consumption expenditures. Nearly all of this spending increase was reversed in the subsequent period. A fair amount of these expenditures went toward home improvements and repairs. In addition, households used home equity to help finance their purchases of used cars. Equity extraction also led to some household balance sheet reshuffling. In particular, households who extracted equity were somewhat more likely than other households to pay down their higher-cost credit card debt and to invest in other real estate and businesses. Overall, the results in this paper are consistent with households' extracting equity during the first half of this decade to fund one-time durable good consumption needs. Keywords: Home equity loans; Consumer behavior (search for similar items in EconPapers) Downloads: (external link) Related works: Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text Persistent link: https://EconPapers.repec.org/RePEc:fip:fedbpp:09-7 Ordering information: This working paper can be ordered from Access Statistics for this paper More papers in Public Policy Discussion Paper from Federal Reserve Bank of Boston Contact information at EDIRC. |
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