Abstract:
We show that the determinants of mortgage borrowing and other forms of
consumer credit differ: borrowers tend to consider asset holdings when taking out a
mortgage, but focus on short-term economic expectations when borrowing other
consumer credit. We hypothesize that this “mortgage wealth effect” occurs in part due to
a borrower’s ability to collateralize real estate assets, and a growing perception of the
house as an investment as well as a residence. Further, we propose that this wealth effect
contributed to an increase in mortgage debt from the 1970s forward, and that legislative
changes and the growth of securitization in the 1990s magnified this effect.
