House price appreciation,liquidity constraints,and second mortgages |
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| Institution: | 1. Faculty of Chemistry, University of Warsaw, Ul. Pasteura 1, 02-093, Warsaw, Poland;2. Centre of New Technologies, University of Warsaw, Ul. Banacha 2c, 02-097, Warsaw, Poland;1. MIA, Université La Rochelle, Avenue Michel Crépeau, 17042- La Rochelle, France;2. GREThA, Université de Bordeaux, Avenue Léon Duguit, 33608- Pessac Cedex, France;3. INRA-LAMETA, 2 Place Viala, 34060- Montpellier Cedex 1, France;1. School of Economics and Management, North China Electric Power University, Beijing 102206, China;2. Beijing Key Laboratory of New Energy and Low-Carbon Development (North China Electric Power University), Changping, Beijing 102206, China;3. Greenpeace East Asia, Beijing 100007, China;1. Department of Surgery, Boston Medical Center, Boston University School of Medicine, Boston, MA, USA;2. Department of Surgery, Beth Israel Deaconess Medical Center, Harvard Medical School, Boston, MA, USA;3. Department of Surgery, Leiden University Medical Center, University of Leiden, Leiden, The Netherlands |
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| Abstract: | This paper analyzes how households use second mortgages in response to shocks to housing wealth. Two related questions are examined: Do households use home equity in response to house price appreciation? Are liquidity constraints important for homeowners? A theoretical model shows that liquidity-constrained households respond more strongly to house price changes than unconstrained households. Using PSID, I find noteworthy differences in borrowing patterns of homeowners by the ratio of wealth to income. Low wealth-to-income homeowners exhibit a strong reaction to house price appreciation, whereas high wealth-to-income ones do not. The results indicate the importance of liquidity constraints among homeowners. |
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