Previous research indicates that changes in housing wealth affect consumer spending on cars. We find that home equity extraction plays only a small role in this relationship. Consumers rarely use funds from equity extraction to purchase a car directly, even during the mid‐2000s’ housing boom; this finding holds across three nationally representative household surveys. We find in credit bureau data that equity extraction does lead to a statistically significant increase in auto loan originations, consistent with equity extraction easing borrowing constraints in the auto loan market. This channel, though, accounts for only a tiny share of overall car purchases.

Despite a broad recovery of the U.S. economy from the depths of the Great Recession, lingering slack remains in the labor market.

Previous research indicates that changes in housing wealth affect consumer spending on cars. We find that home equity extraction plays only a small role in this relationship. Consumers rarely use funds from equity extraction to purchase a car directly, even during the mid-2000s housing boom; this finding holds across three nationally representative household surveys. We find in credit bureau data that equity extraction does lead to a statistically significant increase in auto loan originations, consistent with equity extraction easing borrowing constraints in the auto loan market. This channel, though, accounts for only a tiny share of overall car purchases.

We use data from three nationally representative surveys to document that very few households report purchasing cars with home equity lines of credit or the proceeds from a cash-out refinancing. Households that do report using these sources of funds to purchase cars tend to be affluent and appear to have ample access to credit. These findings suggest that an easing of home-equity borrowing constraints was not the major factor driving any relationship between home prices and car sales during the housing boom in the 2000s. We discuss other mechanisms that might underlie this relationship.