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

  • 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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Article provided by American Economic Association in its journal American Economic Review.

Volume (Year): 101 (2011)
Issue (Month): 5 (August)
Pages: 2132-56

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Handle: RePEc:aea:aecrev:v:101:y:2011:i:5:p:2132-56
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  12. Aoki, Kosuke & Proudman, James & Vlieghe, Gertjan, 2004. "House prices, consumption, and monetary policy: a financial accelerator approach," Journal of Financial Intermediation, Elsevier, vol. 13(4), pages 414-435, October.
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  21. repec:arz:wpaper:eres2008-241 is not listed on IDEAS
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  26. Albert Saiz, 2008. "On Local Housing Supply Elasticity," ERES eres2008_241, European Real Estate Society (ERES).
  27. Bostic, Raphael & Gabriel, Stuart & Painter, Gary, 2009. "Housing wealth, financial wealth, and consumption: New evidence from micro data," Regional Science and Urban Economics, Elsevier, vol. 39(1), pages 79-89, January.
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