How Much Are Car Purchases Driven by Home Equity Withdrawal?

McCully, Brett; Pence, Karen M.; Vine, Daniel J.

doi:10.1111/jmcb.12595

Cited by 11 publications

(5 citation statements)

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“…32 A similar conclusion is drawn in earlier work by Caplin, Freeman, and Tracy (1997). 33 Results in McCully, Pence, and Vine (2019) suggest that extraction may be used for down payments rather than substituting for auto loans.…”

Section: Refinancing Mortgage Payment Size and Consumptionmentioning

confidence: 53%

Refinancing, Monetary Policy, and the Credit Cycle

Amromin

Bhutta

Keys

2020

Annu. Rev. Financ. Econ.

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We assess the complicated reality of monetary policy transmission through mortgage markets by synthesizing the existing literature on the role of refinancing in policy implementation. After briefly reviewing mortgage market institutions in the USA and documenting refinance activity over time, we summarize the links between refinancing and consumption and describe the frictions impeding the refinancing channel. The review draws heavily on research emerging from the experience of the financial crisis of 2008–2009, as it highlights a combination of market, institutional, and policy-making factors that dulled the transmission mechanism. We conclude with a discussion of potential mortgage market innovations and the applicability of lessons learned to the ongoing stresses induced by the COVID-19 pandemic. Expected final online publication date for the Annual Review of Financial Economics, Volume 12 is November 2, 2020. Please see http://www.annualreviews.org/page/journal/pubdates for revised estimates.

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Section: Refinancing Mortgage Payment Size and Consumptionmentioning

confidence: 53%

Refinancing, Monetary Policy, and the Credit Cycle

Amromin

Bhutta

Keys

2020

Annu. Rev. Financ. Econ.

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“…These results show several interesting dynamics. First, parents whose children did not transition to homeownership exhibit large increases in the likelihood of new auto activity in the periods around equity extraction, consistent with some fraction of equity extraction being used to finance large purchases (McCully et al (2019)). By contrast, there is little evidence of similar behavior by parents whose children have transitioned into new homeownership.…”

Section: Parental Equity Extraction and Other New Debtmentioning

confidence: 90%

Dynastic Home Equity

Benetton,

Kudlyak,

Mondragon

2022

ERWP

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Using a nationally representative panel of consumer credit records for the US from 1999 to 2021, we document a positive correlation between child and parent homeownership. We propose a new causal mechanism behind this relationship based on parents extracting home equity to help finance their child's home purchase and quantify this mechanism in several ways. First, controlling for cohort, zip code, age, and the creditworthiness of parents and children, we find that children whose parents extract equity are 60% more likely to become a homeowner than children whose homeowner-parents do not extract equity. Second, using an event study approach, we find that the increase in child homeownership occurs almost entirely in the year when parents extract equity. Third, using variation in equity extraction induced by households near leverage constraints, we find parental equity extraction increases the child's probability of becoming a homeowner by about five times. Our results highlight the importance of familial wealth for household wealth accumulation and housing wealth in particular. A back-of-the-envelope calculation suggests that dynastic home equity increases housing wealth inequality among young adults by 20%.

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“…McCully, Pence, and Vine (2019) provide evidence that consumers rarely use HEW proceeds to directly fund car purchases, but equity extraction may facilitate their car loan originations by overcoming down payment requirements or other credit constraints.20 A subtle technical difference is that Cooper (2010) converts two-year HEWs into one-year measures to be consistent with the consumption spending measures, whereas my analysis does not do so at the estimation stage. In the discussion section, spending estimates will be converted into two-year interval units to be compared with others.21 The housing bust period refers to the years 2007 to 2013; the housing boom period refers to the years 1999 to 2007 and 2013 to 2015.…”

mentioning

confidence: 93%

“…Alternative proxies of liquidity constraints have been utilized to imperfectly divide a sample into constrained versus unconstrained observations, such as low wealth-income ratio(Zeldes, 1989), income shortfall relative to its long-term average(Cooper, 2013), high debt-payment-to-income ratio(Johnson and Li, 2010), or high LTV ratio(Disney and Gathergood, 2011).5 Other studies explore more detailed, proprietary data sources to examine specific aspects of the impacts of HEWs, including car purchases(McCully, Pence, and Vine, 2019) and consumer debt payoff(Bhutta and Keys, 2016).6 Since 1999, PSID has greatly enhanced its survey of the domains of household spending and wealth. More details are provided in Section 2.…”

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confidence: 99%

What Did Homeowners Do with Home Equity Borrowing? Contemporaneous and Long‐Term Effects

Guo¹

2022

J of Money Credit Banking

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Using a panel sample from the Panel Study Income Dynamics (1999)(2000)(2001)(2002)(2003)(2004)(2005)(2006)(2007)(2008)(2009)(2010)(2011)(2012)(2013)(2014)(2015), I find that homeowners' contemporaneous spending and nonhome wealth increased with home equity withdrawals, but their longer-term spending and wealth declined if their home equity was extracted during the housing boom period. Following Hurst and Stafford's (2004) definition of liquidity constraint, I find that the constrained homeowners' contemporaneous spending increased less, while their financial wealth increased more than those of the unconstrained. Unconstrained homeowners invested more than constrained homeowners in nonhome real estate and businesses. In the long run, the consumption spending of both groups persistently declined, while their wealth recovered from initial declines.

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How Much Are Car Purchases Driven by Home Equity Withdrawal?

Cited by 11 publications

References 44 publications

Refinancing, Monetary Policy, and the Credit Cycle

Refinancing, Monetary Policy, and the Credit Cycle

Dynastic Home Equity

What Did Homeowners Do with Home Equity Borrowing? Contemporaneous and Long‐Term Effects

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