Housing Wealth, Consumption Channels and Mortgage Liberalization


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Lingxiao Li, Bing Zhu

433 / 465




International Real Estate Review



This paper investigates two types of housing wealth effects: conventional housing wealth and collateral. We incorporate home equity extraction (HEE) and the influence of mortgage liberalization into the model in Campbell and Mankiw (1989). Based on U.S. data during the 1977Q1–2019Q4, our empirical results suggest that consumption is remarkably influenced by the use of HEE, rather than home equity. Furthermore, the rapid expansion of mortgage securitization significantly amplifies the collateral effect. Conditional on the use of HEE and the share of non-bank mortgage holdings, housing wealth has an average marginal propensity to consume (MPC) of 0.84 cents and a maximum MPC of 6.06 cents. In 2007, when market-based mortgage pools and issuers of asset-backed securities held more than 60% of home mortgages, the HEE shock explained for over 50% of the forecasting variance of consumption growth. The results provide evidence that with a focus on collateral value, lenders allow more equity withdrawal, which leads to higher consumption.


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Consumption, Housing Wealth, Home Equity Extraction, Market-Based Mortgage Holdings, Time-Varying Cointegration.