Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/189943 
Year of Publication: 
2017
Series/Report no.: 
Sveriges Riksbank Working Paper Series No. 343
Publisher: 
Sveriges Riksbank, Stockholm
Abstract: 
Using a monthly panel dataset of individuals' debt composition including mortgage and nonmortgage consumer credit, we show that house price changes can explain a significant fraction of personal debt composition dynamics. We exploit the variation in local house price growth as shocks to homeowners' housing wealth to study the consequential adjustment of personal debt composition. To account for local demand shocks and disentangle the housing collateral channel from the wealth effect, we use renters and non-equity-withdrawal homeowners in the same region as control groups. We present direct evidence that homeowners reoptimize their debt structure by using withdrawn home equity to pay down comparatively expensive short-term non-mortgage debt during a housing boom, unsecured consumer loans in particular. We also find that homeowners withdraw home equity to finance their entrepreneurial activities. Our study sheds new light on the dynamics of personal debt composition in response to changes in house prices.
Subjects: 
Household Decision
Personal Debt Management
Credit Constraint
Cash-out Refinancing
Entrepreneurship
JEL: 
D14
G21
L26
R31
Document Type: 
Working Paper

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