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Equity theory explains how our sense of fairness influences the dynamics of close relationships. Rooted in social psychology, the theory posits that individuals evaluate fairness by comparing the ratio of their contributions to the rewards they receive. Relationship satisfaction is highest when these ratios are perceived as balanced between partners, promoting mutual reciprocity and a sense of justice.Equity vs. Equality in RelationshipsEquity is distinct from equality. Fairness does not...
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Social psychologists have documented that feeling good about ourselves and maintaining positive self-esteem is a powerful motivator of human behavior (Tavris & Aronson, 2008). In the United States, members of the predominant culture typically think very highly of themselves and view themselves as good people who are above average on many desirable traits (Ehrlinger, Gilovich, & Ross, 2005). Often, our behavior, attitudes, and beliefs are affected when we experience a threat to our...
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As formulated by John Thibaut and Harold Kelley, Social Exchange Theory explains human relationships as economic-like exchanges that maximize rewards and minimize costs. This theory suggests that individuals engage in relationships to gain benefits and reduce burdens, similar to economic transactions. It has been widely applied to various types of relationships, including romantic, professional, and social interactions.Rewards and Costs in RelationshipsRelationship rewards include emotional...
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How Much Are Car Purchases Driven by Home Equity Withdrawal?

Brett A McCully1, Karen M Pence2, Daniel J Vine2

  • 1UCLA Department of Economics.

Journal of Money, Credit, and Banking
|November 29, 2019
PubMed
Summary

Home equity extraction has a minimal impact on car purchases, despite easing auto loan constraints. Consumers rarely use these funds directly for vehicle acquisition, even during housing booms.

Keywords:
Auto loansauto salescash-out refinancinghome equityhome equity lines of creditmortgage refinancingmotor vehicles

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Area of Science:

  • Economics
  • Consumer Finance
  • Housing Market Dynamics

Background:

  • Previous studies link housing wealth changes to consumer spending on automobiles.
  • The role of home equity extraction in financing car purchases remains incompletely understood.

Purpose of the Study:

  • To investigate the extent to which home equity extraction influences consumer spending on cars.
  • To determine the direct and indirect channels through which home equity extraction affects car purchases.

Main Methods:

  • Analysis of three nationally representative household surveys.
  • Examination of credit bureau data to assess auto loan originations.

Main Results:

  • Consumers infrequently use home equity extraction funds directly for car purchases, even during housing booms.
  • Home equity extraction significantly increases auto loan originations, indicating it eases borrowing constraints.
  • The channel through which equity extraction influences car purchases accounts for a small fraction of total car spending.

Conclusions:

  • Home equity extraction plays a minor role in the relationship between housing wealth and car spending.
  • While facilitating auto borrowing, equity extraction is not a primary driver of direct car purchases.