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Homeowner Borrowing and Housing Collateral: New Evidence from Expiring Price Controls
Author(s) -
DEFUSCO ANTHONY A.
Publication year - 2018
Publication title -
the journal of finance
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 18.151
H-Index - 299
eISSN - 1540-6261
pISSN - 0022-1082
DOI - 10.1111/jofi.12602
Subject(s) - collateral , leverage (statistics) , marginal propensity to consume , loan , monetary economics , investment (military) , exploit , business , economics , microeconomics , finance , market liquidity , machine learning , politics , computer security , computer science , law , political science
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.