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Homeowner Borrowing and Housing Collateral: New Evidence from Expiring Price Controls

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  • ANTHONY A. DEFUSCO

Abstract

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.

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  • Anthony A. Defusco, 2018. "Homeowner Borrowing and Housing Collateral: New Evidence from Expiring Price Controls," Journal of Finance, American Finance Association, vol. 73(2), pages 523-573, April.
    • Handle: RePEc:bla:jfinan:v:73:y:2018:i:2:p:523-573
    DOI: 10.1111/jofi.12602
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