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

Listed author(s):
  • Atif Mian
  • Amir Sufi

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

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File URL: http://www.aeaweb.org/articles.php?doi=10.1257/aer.101.5.2132
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File URL: http://www.aeaweb.org/aer/data/aug2011/20090854_data.zip
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Article provided by American Economic Association in its journal American Economic Review.

Volume (Year): 101 (2011)
Issue (Month): 5 (August)
Pages: 2132-2156

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Handle: RePEc:aea:aecrev:v:101:y:2011:i:5:p:2132-56
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  14. Albert Saiz, 2010. "The Geographic Determinants of Housing Supply," The Quarterly Journal of Economics, Oxford University Press, vol. 125(3), pages 1253-1296.
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  17. Hanno Lustig & Stijn Van Nieuwerburgh, 2003. "Housing Collateral, Consumption Insurance and Risk Premia: An Empirical Perpective," NBER Working Papers 9959, National Bureau of Economic Research, Inc.
  18. Bernanke, Ben & Gertler, Mark, 1989. "Agency Costs, Net Worth, and Business Fluctuations," American Economic Review, American Economic Association, vol. 79(1), pages 14-31, March.
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  25. repec:arz:wpaper:eres2008-241 is not listed on IDEAS
  26. Peter J. Brady & Glenn B. Canner & Dean M. Maki, 2000. "The effects of recent mortgage refinancing," Federal Reserve Bulletin, Board of Governors of the Federal Reserve System (U.S.), issue Jul, pages 441-450.
  27. Reuven Glick & Kevin J. Lansing, 2010. "Global household leverage, house prices, and consumption," FRBSF Economic Letter, Federal Reserve Bank of San Francisco, issue jan11.
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