Working paper: Liquidity Constraints in the U.S. Housing Market

Working paper - November 2019 - No. 146

Authors Gorea, Denis (Danmarks Nationalbank); Midrigan, Virgiliu (New York University)
Subject Housing finance; International Economy; Models
Type Working paper
Year 2019
Published 11 November 2019
We show that U.S. housing wealth is very illiquid despite all the instruments for extracting home equity available to homeowners. We come to this conclusion by studying the implications of liquidity constraints in a quantitative life-cycle model in which we explicitly account for key institutional details of the U.S. housing and mortgage markets. We find that mortgage market frictions that prevent homeowners from tapping into home equity are sizeable and that most homeowners keep their consumption low for precautionary reasons.