Debt, Financial Vulnerability, and Repayment Behaviour in Older Canadian Households

Earlier research has documented that debt at older ages has increased significantly in Canada over the period from 1999 to 2016. In this article, we explore the consequences of a growing proportion of older Canadian households experiencing financial vulnerability. After controlling for household characteristics, we find among older households that a high debt-to-asset ratio and very low liquid wealth are significantly and positively associated with skipping or delaying a mortgage or non-mortgage debt payment and with usually paying the minimum amount or less on credit cards in the previous year. The debt-to-income ratio, however, is not an important indicator of financial vulnerability for older households.

The Effects of Gender and Marital Status on Accrued Debt in Retirement Planning

The effects of gender and marital status on accrued debt in retirement planning becomes an urgent concern because unmarried women face greater financial challenges in retirement than their counterparts. This study used data from the National Financial Capability Study (NFCS), designed by FINRA. We identified debt that influences retirement planning among a sample of pre-retirees, aged 51 to 61 years, and consider the associations of gender, marital status, debt, and retirement planning. Our results indicated that mortgage debt and credit card debt were negatively associated with retirement planning for women. Having a retirement account is positively associated with retirement planning and it also mediates the relationship between credit card debt and retirement planning. We urge women and financial planning executives to take time during the pre-retirement years to assess their various forms of debt and determine how it affects retirement planning objectives given current marital status.

Do social interactions matter for borrowing behaviour of the Europeans aged 50+?

PurposeThis paper aims to explore the linkage between households' social interactions and credit context and how these interactions may influence household borrowing decisions.Design/methodology/approachBased on a sample of 45,907 individuals referred to 18 countries, drawn from the Survey of Health, Ageing and Retirement in Europe, different probit regressions are used to test the four hypotheses proposed.FindingsEmpirical evidence confirms that intensive and extensive sociability are positively related to consumer debt holding. However, when social activities are considered separately, there is weak evidence that they are also related to mortgage debt holding and over-indebtedness. Moreover, at this level of analysis, the different nature of the social activities in which the individual participates in may condition the relationship with borrowing behaviour. The findings also show that relative income plays a passive role in household borrowing behaviour, since low-income households are more likely to hold mortgage and informal loans or to be over-indebted in highly indebted countries.Originality/valueFirst, this paper extends the knowledge of the relationship between social interactions and borrowing behaviour by considering not only the intensity and diversity of the social activities in which the individual participates, but also the different nature of these activities. Second, it proposes that social interactions may play a passive role on borrowing decision, suggesting that household's behaviour might be passively affected by the density of borrowers surrounding it. To the best of our knowledge, there has not been any attempt to test this issue regarding household borrowing decisions. Third, unlike the few empirical papers on the topic, the paper also analyses previous issues by distinguishing between different types of debts; a distinction that revels the different role played by social interactions.

Mortgage debt and time-varying monetary policy transmission

This paper studies the role of monetary policy for the dynamics of US mortgage debt, which accounts for the largest part of household debt. A time-varying parameter vector autoregressive (VAR) model allows us to study the variation in the sensitivity of mortgage debt to monetary policy. We find that an identically sized policy shock became less effective over time. We use a dynamic stochastic general equilibrium model to show that a fall in the share of adjustable rate mortgages (ARMs) can replicate this finding. Calibrating the model to the drop in the ARM share since the 1980s yields a decline in the sensitivity of housing debt to monetary policy which is quantitatively similar to the VAR results. A sacrifice ratio for mortgage debt reveals that a policy tightening directed toward reducing household debt became more expensive in terms of a loss in employment. Counterfactuals show that this result cannot be attributed to changes in monetary policy itself.

The determinants of capitalization rates: evidence from the US real estate markets

PurposeEstablishing the strength of a novel variable–mortgage debt as a fraction of US gross domestic product (GDP)–on forecasting capitalization rates in both the US office and multifamily sectors.Design/methodology/approachThe authors specifies a vector error correction model (VECM) to the data. VECM are used to address the nonstationarity issues of financial variables while maintaining the information embedded in the levels of the data, as opposed to their differences. The cap rate series used are from Green Street Advisors and represent transaction cap rates which avoids the problem of artificial smoothness found in appraisal-based cap rates.FindingsUsing a VECM specified with the novel variable, unemployment and past cap rates contains enough information to produce more robust forecasts than the traditional variables (return expectations and risk premiums). The method is robust both in and out of sample.Practical implicationsThis has direct implications for governmental policy, offering a path to real estate price stability and growth through mortgage access–functions largely influenced by the Fed and the quasi-federal agencies Fannie Mae and Freddie Mac. It also offers a timely alternative to interest rate-based forecasting models, which are likely to be less useful as interest rates are to be held low for the foreseeable future.Originality/valueThis study offers a new and highly explanatory variable to the literature while being among the only to model either (1) transactional cap rates (versus appraisal) (2) out-of-sample data (versus in-sample) (3) without the use of the traditional variables thought to be integral to cap rate modelling (return expectations and risk premiums).

Housing and health inequities during COVID-19: findings from the national Household Pulse Survey

BackgroundCOVID-19 has exploited the inequities within the US housing system. Examining the association between housing and health during the pandemic is imperative to reducing health inequities and improving population health.MethodsWe analysed 957 714 responses from the Household Pulse Survey Study, collected between April and July 2020. Using survey-weighted multivariable regression analyses, we assessed the relationships between housing tenure and health, both on average and over time, as well as how these relationships were moderated by COVID-19-related hardships including job loss, food insecurity and inability to afford housing-related costs. We controlled for a variety of potential socioeconomic and demographic confounding factors.ResultsWe found that housing tenure was significantly associated with both self-rated health and mental distress. Compared with homeowners without mortgage debt, homeowners with mortgage debt reported worse self-rated health (β=−0.13; 95% CI −0.15 to −0.12, p<0.001) and greater mental distress (β=0.50; 95% CI 0.44 to 0.55, p<0.001). Renters also reported worse self-rated health (β=−0.18; 95% CI −0.20 to −0.16, p<0.001) and greater mental distress (β=0.76; 95% CI 0.69 to 0.83, p<0.001) than homeowners without mortgage debt. Across all tenure groups, self-rated health decreased (β=−0.007; 95% CI −0.011 to −0.004, p<0.001) and mental distress increased (β=0.05; 95% CI 0.05 to 0.06, p<0.001) over this period. Additionally, time and COVID-19-related hardships compounded differences in health status between homeowners and renters.ConclusionsThese results add to a limited body of evidence suggesting that, during this period, housing instability and COVID-19-related hardships have contributed to an increase in health inequities in the USA.