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Housing Wealth and Consumption: The Role of Heterogeneous Credit Constraints

Author

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  • S. Borağan Aruoba
  • Ronel Elul
  • Ṣebnem Kalemli-Özcan

Abstract

We quantify the role of heterogeneity in households’ financial constraints in explaining the link between the large decline in aggregate consumption and the decline in house values between 2006 and 2009 using individual-level data. Constraints that are triggered by a decline in house values, and a small fraction of consumers facing particularly severe constraints prior to the decline in house values explain 76% of the aggregate response. Local general equilibrium feedback and a decline in bank credit to consumers make up the remaining 24%. We find no contribution of a pure wealth effect in explaining the consumption decline.

Suggested Citation

  • S. Borağan Aruoba & Ronel Elul & Ṣebnem Kalemli-Özcan, 2022. "Housing Wealth and Consumption: The Role of Heterogeneous Credit Constraints," NBER Working Papers 30591, National Bureau of Economic Research, Inc.
    • Handle: RePEc:nbr:nberwo:30591
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    Cited by:

    1. is not listed on IDEAS
    2. Felix Chopra & Christopher Roth & Johannes Wohlfart, 2025. "Home Price Expectations and Spending: Evidence from a Field Experiment," American Economic Review, American Economic Association, vol. 115(7), pages 2267-2305, July.

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    JEL classification:

    • E0 - Macroeconomics and Monetary Economics - - General

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