How Much Are Car Purchases Driven by Home Equity Withdrawal?

McCully, Brett; Pence, Karen M.; Vine, Daniel J.

doi:10.17016/FEDS.2015.106r1

Working Paper

How Much Are Car Purchases Driven by Home Equity Withdrawal?

Abstract: Previous research indicates that changes in housing wealth affect consumer spending on cars. We find that home equity extraction plays only a small role in this relationship. Consumers rarely use funds from equity extraction to purchase a car directly, even during the mid-2000s housing boom; this finding holds across three nationally representative household surveys. We find in credit bureau data that equity extraction does lead to a statistically significant increase in auto loan originations, consistent with equity extraction easing borrowing constraints in the auto loan market. This channel, though, accounts for only a tiny share of overall car purchases.

Keywords: Auto loans; Auto sales; cash-out refinancing; Home equity; Home equity lines of credit; Mortgage refinancing; Motor vehicles;

JEL Classification: D12; D14; E21; G21;

https://doi.org/10.17016/FEDS.2015.106r1