“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.

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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