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The effect of house prices on household borrowing: a new approach

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  • Cloyne, James
  • Huber, Kilian
  • Ilzetzki, Ethan
  • Kleven, Henrik

Abstract

We investigate the effect of house prices on household borrowing using administrative mortgage data from the United Kingdom and a new empirical approach. The data contain household-level information on house prices and borrowing in a panel of homeowners, who refinance at regular and quasi-exogenous intervals. The data and setting allow us to develop an empirical approach that exploits house price variation coming from the idiosyncratic and exogenous timing of refinance events around the Great Recession. We present two main results. First, there is a clear and robust effect of house prices on borrowing. Second, the effect of house prices on borrowing can be explained largely by collateral effects. We study the collateral channel through a multivariate and nonparametric heterogeneity analysis of proxies for collateral and wealth effects.

Suggested Citation

  • Cloyne, James & Huber, Kilian & Ilzetzki, Ethan & Kleven, Henrik, 2019. "The effect of house prices on household borrowing: a new approach," LSE Research Online Documents on Economics 101065, London School of Economics and Political Science, LSE Library.
    • Handle: RePEc:ehl:lserod:101065
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    1. Karl E. Case & Robert J. Shiller & Anne K. Thompson, 2012. "What Have They Been Thinking? Homebuyer Behavior in Hot and Cold Markets," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 43(2 (Fall)), pages 265-315.
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    More about this item

    JEL classification:

    • D14 - Microeconomics - - Household Behavior - - - Household Saving; Personal Finance
    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
    • R31 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - Real Estate Markets, Spatial Production Analysis, and Firm Location - - - Housing Supply and Markets

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