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House Prices, Home Equity-Based Borrowing, and the US Household Leverage Crisis

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  • Atif Mian
  • Amir Sufi

Abstract

Borrowing against the increase in home equity by existing homeowners was responsible for a significant fraction of the rise in US household leverage from 2002 to 2006 and the increase in defaults from 2006 to 2008. Instrumental variables estimation shows that homeowners extracted 25 cents for every dollar increase in home equity. Home equity-based borrowing was stronger for younger households and households with low credit scores. The evidence suggests that borrowed funds were used for real outlays. Home equity-based borrowing added $1.25 trillion in household debt from 2002 to 2008, and accounts for at least 39 percent of new defaults from 2006 to 2008. JEL: D14, R31

Suggested Citation

  • Atif Mian & Amir Sufi, 2011. "House Prices, Home Equity-Based Borrowing, and the US Household Leverage Crisis," American Economic Review, American Economic Association, vol. 101(5), pages 2132-2156, August.
    • Handle: RePEc:aea:aecrev:v:101:y:2011:i:5:p:2132-56
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    More about this item

    JEL classification:

    • E0 - Macroeconomics and Monetary Economics - - General
    • E00 - Macroeconomics and Monetary Economics - - General - - - General
    • E2 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment
    • E3 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles
    • E5 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit
    • E6 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook
    • G01 - Financial Economics - - General - - - Financial Crises
    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • G3 - Financial Economics - - Corporate Finance and Governance
    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill
    • G33 - Financial Economics - - Corporate Finance and Governance - - - Bankruptcy; Liquidation

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