“Cash on Hand” and Consumption: Evidence from Mortgage Refinancing

From Atif Mian and Amir Sufi:

We investigate how house price and interest rate movements affect household spending through mortgage refinancing. Aggregate movements in house prices and interest rates generate sizable mortgage refinancing waves with a large amount of cross-sectional variation across U.S. zip codes in the share of mortgages that are refinanced. We use this cross-sectional variation across zip codes to examine the effect of refinancing–or “cash-on-hand” shocks–on household spending from 2000 to 2012. Cash-out refinancing in response to house price growth has a very large effect on household spending, particularly among low credit score, poorer zip codes. The effects of interest-rate driven mortgage refinancing are mixed. For the full sample, we find almost no effect of interest-rate driven mortgage refinancing on spending. However, we find a positive effect on spending during the 2008 to 2012 period. House-price growth-driven and interest-rate driven refinancing generate cash on hand shocks for different households, which is crucial for understanding these results.

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About ozidar

I'm an Assistant Professor of Economics at the University of Chicago Booth School of Business and a Faculty Research Fellow at National Bureau of Economic Research. You can follow me on twitter @omzidar. http://faculty.chicagobooth.edu/owen.zidar/index.html
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