TY  - JOUR
AU  - Mian, Atif R
AU  - Sufi, Amir
TI  - House Prices, Home Equity-Based Borrowing, and the U.S. Household Leverage Crisis
JF  - National Bureau of Economic Research Working Paper Series
VL  - No. 15283
PY  - 2009
Y2  - August 2009
DO  - 10.3386/w15283
UR  - http://www.nber.org/papers/w15283
L1  - http://www.nber.org/papers/w15283.pdf
N1  - Author contact info:
Atif R. Mian
Princeton University
Bendheim Center For Finance
26 Prospect Avenue
Princeton, NJ 08540
E-Mail: atif@princeton.edu

Amir Sufi
University of Chicago
Booth School of Business
5807 South Woodlawn Avenue
Chicago, IL 60637
Tel: 773/702-6148
Fax: 773/702-0458
E-Mail: amir.sufi@chicagobooth.edu
M2  - featured in NBER digest on 2009-11-09
AB  - Using individual-level data on homeowner debt and defaults from 1997 to 2008, we show that borrowing against the increase in home equity by existing homeowners is responsible for a significant fraction of both the sharp rise in U.S. household leverage from 2002 to 2006 and the increase in defaults from 2006 to 2008. Employing land topology-based housing supply elasticity as an instrument for house price growth, we estimate that the average homeowner extracts 25 to 30 cents for every dollar increase in home equity. Money extracted from increased home equity is not used to purchase new real estate or pay down high credit card balances, which suggests that borrowed funds may be used for real outlays (i.e., consumption or home improvement). Home equity-based borrowing is stronger for younger households, households with low credit scores, and households with high initial credit card utilization rates. Homeowners in high house price appreciation areas experience a relative decline in default rates from 2002 to 2006 as they borrow heavily against their home equity, but experience very high default rates from 2006 to 2008. Our estimates suggest that home equity-based borrowing is equal to 2.8% of GDP every year from 2002 to 2006, and accounts for at least 34% of new defaults from 2006 to 2008.
ER  -