What Did Homeowners Do with Home Equity Borrowing? Contemporaneous and Long-term Effects

Sheng Guo

No 2122, Working Papers from Florida International University, Department of Economics

Abstract: Using a panel sample from the Panel Study Income Dynamics (1999-2015), I find that homeowners' contemporaneous spending and nonhome wealth increased with home equity withdrawals, but their longer-term spending and wealth declined if their home equity was extracted during the housing boom period. Following Hurst and Stafford's (2004) definition of liquidity constraint, I find that the constrained homeowners' contemporaneous spending increased less, while their financial wealth increased more than those of the unconstrained. Unconstrained homeowners invested more than constrained homeowners in nonhome real estate and businesses. In the long run, the consumption spending of both groups persistently declined, while their wealth recovered from initial declines.

Keywords: Consumption; Liquidity constraint; Housing market; Home equity; Mortgage (search for similar items in EconPapers)
JEL-codes: D14 D91 E21 G02 G21 (search for similar items in EconPapers)
Pages: 42 pages
Date: 2021-11
New Economics Papers: this item is included in nep-cwa, nep-mac and nep-ure
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https://economics.fiu.edu/research/pdfs/2021_working_papers/21221.pdf Third version, 2021 (application/pdf)

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Journal Article: What Did Homeowners Do with Home Equity Borrowing? Contemporaneous and Long‐Term Effects (2022)
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