House prices, consumption and the role of non-Mortgage debt

Abstract

This paper examines the relationship between house prices and consumption, through the use of debt. Using unique Canadian household-level data that reports the uses of debt, we begin by looking at the relationship between house prices and debt. Using quantile regression, we find a positive and significant relationship between regional house prices and total household debt all along the conditional debt distribution. This suggests that the household-level relationship between house prices and debt goes beyond the purchase of real estate. We then find a positive relationship between house prices and non-mortgage debt (the sum of secured lines of credit, unsecured lines of credit, leases and other consumer loans, except for credit cards) for homeowners. Combining these results with the reported uses of non-mortgage debt allows us to connect house prices and nonhousing consumption-this connection is new to the literature on house prices and consumption. We conclude that the increases in house prices over the 1999-2007 period were, indeed, associated with an increase in non-mortgage debt and non-housing consumption. Our results can be thought of as the establishment of a conservative lower bound for the overall relationship between house prices and aggregate consumption.

Housing wealth, household debt, and financial assets: Are there implications for consumption?

“…This result is in line with Sousa (2008), who provides empirical support that consumption is sensitive to household debt. It also confirms the empirical results of Kartashova and Tomlin (2017) who find that a significant percent of homeowners' non-mortgage debt is used for non-housing consumption.…”

“…We show that the elasticity of housing wealth is higher than the corresponding elasticity with respect to financial assets, a finding similar with various studies (Barrell et al, 2015;Marquez et al, 2013;Carroll et al, 2011;Dreger and Reimers, 2012;Case et al, 2005;Catte et al, 2004;Ludwig and Slok, 2004;Barata and Pacheco, 2003). We also provide evidence that the consumption elasticity of household debt is statistically significant with a positive effect, indicating that households use part of their liabilities for consumption reasons in line with the empirical results of Kartashova and Tomlin (2017), Bunn and Rostom (2014) and Mian and Sufi (2016).…”

Housing Wealth, Household Debt and Financial Assets: Are There Implications for Consumption?

“…We show that the elasticity of housing wealth is higher than the corresponding elasticity with respect to financial assets, a finding similar with various studies (Barrell et al, 2015;Marquez et al, 2013;Carroll et al, 2011;Dreger and Reimers, 2012;Case et al, 2005;Catte et al, 2004;Ludwig and Slok, 2004;Barata and Pacheco, 2003). We also provide evidence that the consumption elasticity of household debt is statistically significant with a positive effect, indicating that households use part of their liabilities for consumption reasons in line with the empirical results of Kartashova and Tomlin (2017), Bunn and Rostom (2014) and Mian and Sufi (2016).…”

Does Getting a Mortgage Affect Credit Card Use?

“…Therefore, as mortgage debt increases, so does credit card debt. Other evidence indicates a positive correlation between a mortgage or home equity and credit card consumption/debt (Mann 2009;Mian and Sufi 2011;Kartashova and Tomlin 2017). Mian and Sufi (2011) find that households with higher credit card utilization rates increase their debt more strongly in response to increases in home equity.…”