Staff Reports
The Impact of Housing Markets on Consumer Debt: Credit Report Evidence from 1999 to 2012
May 2013  Number 617
Revised September 2013
JEL classification: D12, D14, D91, G01

Authors: Meta Brown, Sarah Stein, and Basit Zafar

We investigate the impact of large swings in the housing market on nonmortgage borrowing,using CoreLogic geographic house price variation and Equifax-sourced FRBNY Consumer Credit Panel data for 1999 to 2012. First-differenced instrumental variables (FD-IV) estimates indicate that all homeowner types increased both housing and nonhousing debt in response to the housing boom. However, older and prime homeowners responded to house price changes by reallocating obligations between home equity and credit card debt, with little change in total debt, during both the comparatively stable 1999-2001 period and the 2007-12 downturn. Younger and marginally creditworthy homeowners' nonmortgage debts moved with house prices during both expansions and downturns. These results suggest meaningful wealth effects of the housing market onconsumption only for the boom period, but collateral effects throughout. A difference-in-differences estimation approach yields similar results. Finally, despite broad speculation, we find little substitution out of home equity debt into student loans in response to recent house price declines.

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