Homeowner Borrowing and Housing Collateral: New Evidence from Expiring Price Controls

Homeowner Borrowing and Housing Collateral: New Evidence from Expiring Price Controls

  • ANTHONY A. DEFUSCO

Article first published online: 10th January 2018 DOI: 10.1111/jofi.12602

Abstract


I empirically analyze how changes in access to housing collateral affect homeowner borrowing behavior. To isolate the role of collateral constraints from that of wealth effects, I exploit the fully anticipated expiration of resale price controls on owner‐occupied housing in Montgomery County, Maryland. I estimate a marginal propensity to borrow out of housing collateral that ranges between $0.04 and $0.13 and is correlated with homeowners' initial leverage. Additional analysis of residential investment and ex‐post loan performance indicates that some of the extracted funds generated new expenditures. These results suggest a potentially important role for collateral constraints in driving household expenditures.

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