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

JEL Classification: E21; D14; D12; G21;

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Bibliographic Information

Provider: Board of Governors of the Federal Reserve System (U.S.)

Part of Series: Finance and Economics Discussion Series

Publication Date: 2015-12-01

Number: 2015-106

Pages: 39 pages