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Collateral Damage: The Impact of Mortgage Debt on U.S. Savings

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  • Cengiz Tunc
  • Abdullah Yavas

Abstract

This article contributes to the literature on saving by empirically investigating the determinants of the saving rate in the United States, with a special focus on the role of mortgage debt. Using data from 1987 to 2013, we find that mortgage payments have a substantial negative impact on both personal and private saving rates in the United States. An increase of 10 percentage points in mortgage payments leads to a 9.1-percentage-point drop in the personal saving rate and a 12.4-percentage-point drop in the private saving rate. In addition, including mortgage debt as an explanatory variable leads to significant changes in the impact of other variables, which further reinforces our claim that mortgage debt is important for the analysis of the saving rate. Comparing mortgage payments with nonmortgage consumer debt payments, we find that mortgage payments have a larger impact on the private saving rate whereas nonmortgage consumer debt payments have a larger impact on the personal saving rate. We also find a partial but robust crowding-out effect of public saving rate on the two saving rates. Our results have implications for monetary policy and government policies that encourage mortgage borrowing.

Suggested Citation

  • Cengiz Tunc & Abdullah Yavas, 2017. "Collateral Damage: The Impact of Mortgage Debt on U.S. Savings," Housing Policy Debate, Taylor & Francis Journals, vol. 27(5), pages 712-733, September.
    • Handle: RePEc:taf:houspd:v:27:y:2017:i:5:p:712-733
    DOI: 10.1080/10511482.2017.1311274
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    References listed on IDEAS

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    1. Veronica Guerrieri & Guido Lorenzoni, 2017. "Credit Crises, Precautionary Savings, and the Liquidity Trap," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 132(3), pages 1427-1467.
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    4. Alan, S. & Crossley, T. & Low, H., 2012. "Saving on a Rainy Day, Borrowing for a Rainy Day," Cambridge Working Papers in Economics 1222, Faculty of Economics, University of Cambridge.
    5. Horag Choi & Steven Lugauer & Nelson C. Mark, 2017. "Precautionary Saving of Chinese and U.S. Households," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 49(4), pages 635-661, June.
    6. Mr. Christopher Carroll & Mr. Martin Sommer & Mr. Jiri Slacalek, 2012. "Dissecting Saving Dynamics: Measuring Wealth, Precautionary, and Credit Effects," IMF Working Papers 2012/219, International Monetary Fund.
    7. Aron, Janine & Muellbauer, John & Murphy, Anthony, 2006. "Housing wealth, credit conditions and consumption," MPRA Paper 24485, University Library of Munich, Germany.
    8. John N. Muellbauer, 2007. "Housing, credit and consumer expenditure," Proceedings - Economic Policy Symposium - Jackson Hole, Federal Reserve Bank of Kansas City, pages 267-334.
    9. Joshua Aizenman & Eduardo Cavallo & Ilan Noy, 2015. "Precautionary Strategies and Household Saving," Open Economies Review, Springer, vol. 26(5), pages 911-939, November.
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    Cited by:

    1. Renáta Pitoňáková, 2018. "Private Sector Savings," DANUBE: Law and Economics Review, European Association Comenius - EACO, issue 1, pages 1-17, March.
    2. Ying Fan & Abdullah Yavas, 2020. "How Does Mortgage Debt Affect Household Consumption? Micro Evidence from China," Real Estate Economics, American Real Estate and Urban Economics Association, vol. 48(1), pages 43-88, March.
    3. Ali Güneş & Cengiz Tunç, 2021. "Saving Impact of Mortgage Payments: A Microlevel Study for the U.S. Households," Real Estate Economics, American Real Estate and Urban Economics Association, vol. 49(S2), pages 335-360, September.
    4. Kwan Ok Lee & Masaki Mori, 2021. "Conspicuous consumption and household indebtedness," Real Estate Economics, American Real Estate and Urban Economics Association, vol. 49(S2), pages 557-586, September.
    5. Thom Malone & Christian L. Redfearn, 2022. "To measure globally, aggregate locally: Urban land, submarkets, and biased estimates of the housing stock," Real Estate Economics, American Real Estate and Urban Economics Association, vol. 50(3), pages 656-671, September.

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