Abstract
I empirically analyze how changes to the collateral value of real estate assets affect homeowner borrowing behavior. To isolate the role of collateral constraints from that of wealth effects, I exploit the fully-anticipated expiration of resale price controls on owner-occupied housing in Montgomery County, Maryland. I estimate a marginal propensity to borrow out of housing collateral that ranges between $0.04-$0.13 and is correlated with homeowners’ initial leverage. Additional analysis of residential investment and ex-post loan performance indicates that some of the extracted funds generated new expenditures. These results suggest a potentially important role for house price growth in driving household expenditures.
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