The empirical relationship between home equity borrowing and durable goods purchases

The current financial crisis has drawn attention to consumers' use of the Home Equity Line of Credit (HELOC) to finance consumption. Although many economists have repeatedly noted that such borrowing fueled additional consumption, attempts to quantify the boost to consumer spending have been relatively few. Similarly, attempts to classify the types of goods consumers purchased with their HELOC facilities have been sparse. The present article remedies both situations. The article shows that, in the aggregate, for every one percentage increase in HELOC lending, durable goods consumption increased by between 17% and 25% (on average, from 1991 to 2008). The article uses aggregate consumption data compiled from the Consumer Expenditure Survey, and HELOC data taken from banks' reported financial statements as filed with the Federal Financial Institution Examination Council (FFIEC). A regional-level panel of aggregate consumption and lending is constructed for the years 1991 to 2008. We examine several different measures of durable and nondurable goods, and we find that the durable goods most sensitive to changes in HELOC borrowing are classified as follows: household furniture, equipment and appliances, entertainment goods (including TV, radio, and sound equipment) and transportation (including new and used vehicles).