House Prices, Home Equity Borrowing, and Entrepreneurship

Borrowing against the increase in home equity by existing homeowners was responsible for a significant fraction of the rise in US household leverage from 2002 to 2006 and the increase in defaults from 2006 to 2008. Instrumental variables estimation shows that homeowners extracted 25 cents for every dollar increase in home equity. Home equity–based borrowing was stronger for younger households and households with low credit scores. The evidence suggests that borrowed funds were used for real outlays. Home equity–based borrowing added $1.25 trillion in household debt from 2002 to 2008, and accounts for at least 39 percent of new defaults from 2006 to 2008. JEL: D14, R31

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House Prices, Home Equity-Based Borrowing, and the U.S. Household Leverage Crisis

10.3386/w15283 ◽

2009 ◽

Cited By ~ 49

Author(s):

Atif Mian ◽

Amir Sufi

Keyword(s):

House Prices ◽

Home Equity ◽

The U.S

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House Prices, Home Equity and Entrepreneurship: Evidence from U.S. Census Micro Data

10.3386/w21458 ◽

2015 ◽

Cited By ~ 10

Author(s):

Sari Kerr ◽

William Kerr ◽

Ramana Nanda

Keyword(s):

House Prices ◽

Micro Data ◽

Home Equity

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The Covid-19 Effect on Security Mortgage Valuation

Journal of Statistics Advances in Theory and Applications ◽

10.18642/jsata_7100122193 ◽

2021 ◽

Vol 25 (1) ◽

pp. 13-26

Author(s):

Giovanna Di Lorenzo ◽

◽

Massimiliano Politano ◽

Keyword(s):

Interest Rates ◽

House Prices ◽

Gompertz Model ◽

Mortgage Market ◽

Elderly Persons ◽

Home Equity ◽

Reverse Mortgage ◽

Mortgage Loans ◽

Alternative Source ◽

Cir Process

The reverse mortgage market has been expanding rapidly in developed economies in recent years. Reverse mortgages provide an alternative source of funding for retirement income and health care costs. We often hear the phrase “house rich and cash poor” to refer the increasing number of elderly persons who hold a substantial proportion of their assets in home equity. Reverse mortgage contracts involve a range of risks from the insurer’s perspective. When the outstanding balance exceeds the housing value before the loan is settled, the insurer suffers an exposure to crossover risk induced by three risk factors: interest rates, house prices, and mortality rates. In this context, Covid-19 has occurred and the insurer is faced with this additional source of risk. We analyse the combined impact of these risks on the pricing and the risk profile of reverse mortgage loans. We consider a CIR process for the evolution of the interest rate, a Black & Scholes model for the dynamics of house prices and the Gompertz model for the trend in mortality Our results show that the decrease in the mortality curve due to Covid exposes the insurer to higher risks once the shock is reabsorbed. The risk is higher the higher the age of entry. Only a significant reduction of the shock adjustment coefficient will return the situation to normality.

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Does Collateral Value Affect Asset Prices? Evidence from a Natural Experiment in Texas

Review of Financial Studies ◽

10.1093/rfs/hhaa117 ◽

2020 ◽

Cited By ~ 2

Author(s):

Albert Alex Zevelev

Keyword(s):

Asset Prices ◽

Natural Experiment ◽

House Prices ◽

Consumption Smoothing ◽

Constitutional Amendment ◽

Home Equity ◽

Home Equity Loans ◽

The Law ◽

The Impact

Abstract Does the ability to pledge an asset as collateral, after purchase, affect its price? This paper identifies the impact of collateral service flows on house prices, exploiting a plausibly exogenous constitutional amendment in Texas that legalized home equity loans in 1998. The law change increased Texas house prices 4%; this is price-based evidence that households are credit-constrained and value home equity loans to facilitate consumption smoothing. Prices rose more in locations with inelastic supply, higher prelaw house prices, higher income, and lower unemployment. These estimates reveal that richer households value the option to pledge their home as collateral more strongly.

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