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Home equity lines of credit and the unemployment rate: Have unemployed consumers borrowed themselves into the next financial crisis?

Author

Listed:
  • Michel, Norbert
  • Lajaunie, John P.
  • Lawrence, Shari
  • Fanguy, Ronnie

Abstract

Some economists argue the recent recovery has been so meager because many consumers have lost their main source of income and maxed-out their home-equity borrowings. Further, banks that were able to make consumer loans did so with less security because home prices fell so dramatically. This paper argues that at least part of that recovery story is purely anecdotal and, in fact, incorrect. In spite of the precipitous decline in home prices, the original price increases were so large that many homeowners still have/had adequate equity in their homes to borrow. The paper presents evidence that the average quarterly increase in aggregate home equity line of credit (HELOC) lending after housing prices began their decline is, statistically, no different than the average quarterly increase in HELOC lending before housing prices began their downward trend. The evidence also suggests that increased HELOC lending during the recession is not correlated with higher unemployment.

Suggested Citation

  • Michel, Norbert & Lajaunie, John P. & Lawrence, Shari & Fanguy, Ronnie, 2014. "Home equity lines of credit and the unemployment rate: Have unemployed consumers borrowed themselves into the next financial crisis?," Journal of Banking & Finance, Elsevier, vol. 47(C), pages 147-154.
    • Handle: RePEc:eee:jbfina:v:47:y:2014:i:c:p:147-154
    DOI: 10.1016/j.jbankfin.2014.06.013
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    References listed on IDEAS

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    1. Alan Greenspan & James Kennedy, 2008. "Sources and uses of equity extracted from homes," Oxford Review of Economic Policy, Oxford University Press and Oxford Review of Economic Policy Limited, vol. 24(1), pages 120-144, spring.
    2. Glenn B. Canner & Thomas A. Durkin & Charles A. Luckett, 1998. "Recent developments in home equity lending," Federal Reserve Bulletin, Board of Governors of the Federal Reserve System (U.S.), vol. 84(Apr), pages 241-251, April.
    3. R. Alton Gilbert & Gregory E. Sierra, 2003. "The financial condition of U.S. banks: how different are community banks?," Review, Federal Reserve Bank of St. Louis, vol. 85(Jan), pages 43-56.
    4. Norbert Michel & John Lajaunie & Shari Lawrence, 2011. "The empirical relationship between home equity borrowing and durable goods purchases," Applied Financial Economics, Taylor & Francis Journals, vol. 21(21), pages 1561-1570.
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    More about this item

    Keywords

    Borrowing; Consumer lending; HELOC; Home equity;
    All these keywords.

    JEL classification:

    • E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy
    • E51 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Money Supply; Credit; Money Multipliers

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