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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
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.
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.
Keywords:
Auto loansauto salescash-out refinancinghome equityhome equity lines of creditmortgage refinancingmotor vehiclesMore Related Videos
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