Skip to main content
SpringerLink
Log in

I feel wealthy: A major determinant of Portuguese households’ indebtedness?

  • Published:
Empirical Economics Aims and scope Submit manuscript

Abstract

This paper examines the response of household debt to households’ perception of house prices using data from the first wave of the Household Finance and Consumption Survey. Whereas the literature has hitherto emphasized the effects of housing wealth on consumption, this study concentrates on the effects on debt accumulation—distinguishing mortgage debt from non-mortgage debt and inspecting over-indebtedness. Different measures of housing wealth are considered, controlling for tenure years. The findings reveal that the effects of housing wealth differ by type of loans and with the measure of housing wealth. Over-indebtedness is driven by the same factors that determine mortgage debt, suggesting a strong association between having outstanding liabilities from the primary residence and the risk of entering into default. Further estimations by different income and wealth classes revealed dissimilar housing wealth effects, with non-mortgage debt tending to rise among lower-income households and over-indebtedness tending to be larger among the wealthier.

This is a preview of subscription content, log in via an institution to check access.

Access this article

Log in via an institution

Price excludes VAT (USA)
Tax calculation will be finalised during checkout.

Instant access to the full article PDF.

Institutional subscriptions

Similar content being viewed by others

References

  • Aron J, Duca JV, Muellbauer J, Murata K, Murphy A (2012) Credit, housing collateral, and consumption: evidence from Japan, The U.K., and The U.S. Rev Income Wealth 58:397–423

    Article  Google Scholar 

  • Arrondel L, Lamarche P, Savignac F (2015) Wealth effects on consumption across the wealth distribution: empirical evidence. Working paper series 1817. European Central Bank

  • Attanasio OP, Blow L, Hamilton R, Leicester A (2009) Booms and busts: consumption, house prices and expectations. Economica 76:20–50

    Article  Google Scholar 

  • Burnside C, Eichenbaum M, Rebelo S (2016) Understanding booms and busts in housing markets. J Polit Econ 124:1088–1147

    Article  Google Scholar 

  • Campbell JY (2006) Household finance. J. Finance 61:1553–1604

    Article  Google Scholar 

  • Campbell JY, Cocco JF (2007) How do house prices affect consumption? Evidence from micro data. J Monet Econ 54:591–621

    Article  Google Scholar 

  • Carroll CD (1992) The buffer stock theory of saving: some macroeconomic evidence. Brook Pap Econ Act 23:61–185

    Article  Google Scholar 

  • Case KE, Quigley JM, Shiller RJ (2005) Comparing wealth effects: the stock market versus the housing market. Adv Macroecon 5:1–32. https://doi.org/10.2202/1534-6013.1235

    Article  Google Scholar 

  • Christensen I, Corrigan P, Mendicino C, Nishiyama SI (2016) Consumption, housing collateral and the Canadian business cycle. Can J Econ 49:207–236

    Article  Google Scholar 

  • Cooper D (2013) House price fluctuations: the role of housing wealth as borrowing collateral. Rev Econ Stat 95:1183–1197

    Article  Google Scholar 

  • Costa S, Farinha L (2012) Households’ indebtedness: a microeconomic analysis based on the results of the households’ financial and consumption survey. Financial Stability Report. May. Banco de Portugal

  • Deaton A (1991) Savings and liquidity constraints. Econometrica 59:1221–1248

    Article  Google Scholar 

  • Engelhardt GV (1996) House prices and home owner saving behaviour. Reg Sci Urban Econ 26:313–336

    Article  Google Scholar 

  • Friedman M (1957) A theory of the consumption function. Princeton University Press, Princeton

    Book  Google Scholar 

  • Gimeno R, Martínez-Carrascal C (2010) The relationship between house prices and house purchase loans: the Spanish case. J Bank Finance 34:1849–1855

    Article  Google Scholar 

  • Goodhart C, Hofmann B (2007) House prices and the macroeconomy: implications for banking and price stability. Oxford University Press, Oxford

    Google Scholar 

  • Guerrieri L, Iacoviello M (2017) Collateral constraints and macroeconomic asymmetries. J Monet Econ 90:28–49

    Article  Google Scholar 

  • Household Finance and Consumption Network (2013) The Eurosystem Household Finance and Consumption Survey—methodological report for the first wave. European Central Bank. http://www.ecb.europa.eu/pub/pdf/other/ecbsp1en.pdf

  • Iacoviello M (2005) House prices, borrowing constraints, and monetary policy in the business cycle. Am Econ Rev 95:739–764

    Article  Google Scholar 

  • Iacoviello M, Neri S (2010) Housing market spillovers: evidence from an estimated DSGE model. Am Econ J: Macroecon 2:125–164

    Google Scholar 

  • Kim JR, Chung K (2016) The role of house prices in the US business cycle. Empir Econ 51:71–92

    Article  Google Scholar 

  • Kivedal BK (2014) A DSGE model with housing in the cointegrated VAR framework. Empir Econ 47:853–880

    Article  Google Scholar 

  • Kuang P (2014) A model of housing and credit cycles with imperfect market knowledge. Eur Econ Rev 70:419–437

    Article  Google Scholar 

  • Lambertini L, Mendicino C, Punzi MT (2013) Leaning against boom–bust cycles in credit and housing prices. J Econ Dyn Control 37:1500–1522

    Article  Google Scholar 

  • Lambertini L, Mendicino C, Punzi MT (2017) Expectations-driven cycles in the housing market. Econ Model 60:297–312

    Article  Google Scholar 

  • Mian A, Sufi A (2014) House price gains and U.S. household spending from 2002 to 2006. NBER working papers 20152. National Bureau of Economic Research

  • Mian A, Rao K, Sufi A (2013) Household balance sheets, consumption, and the economic slump. Q J Econ 128:1687–1726

    Article  Google Scholar 

  • Modigliani F, Brumberg RH (1954) Post-Keynesians economics. Rutgers University Press, New Brunswick

    Google Scholar 

  • Muellbauer J, Murata K (2009) Consumption, land prices and the monetary transmission mechanism in Japan. CEPR discussion papers 7269. CEPR discussion papers

  • Oikarinen E (2009) Interaction between housing prices and household borrowing: the Finnish case. J Bank Finance 33:747–756

    Article  Google Scholar 

  • Robstad Ø (2017) House prices, credit and the effect of monetary policy in Norway: evidence from structural VAR models. Empir Econ 542:461–483

    Google Scholar 

  • Rubio M, Carrasco-Gallego JÁ (2016) Liquidity, interest rates and house prices in the euro area: a DSGE analysis. J Eur Real Estate Res 9:4–25

    Article  Google Scholar 

  • Shiller RJ (2007) Understanding recent trends in house prices and home ownership NBER working papers 13553. National Bureau of Economic Research

  • Skinner J (1987) Risky income, life cycle consumption, and precautionary savings. J Monet Econ 22:237–255

    Article  Google Scholar 

  • Tobin J (1958) Estimation of relationships for limited dependent variables. Econometrica 26:24–36

    Article  Google Scholar 

Download references

Acknowledgements

The authors are deeply thankful to the editor and the two anonymous reviewers for their helpful and insightful comments on an earlier version of this article.

Funding

This work was supported by the FCT (Fundação para a Ciência e a Tecnologia, Portugal) under BRU-IUL (Business Research Unit - Instituto Universitário de Lisboa), Grant No. UID/GES/00315/2013.

Author information

Authors and Affiliations

  1. Department of Economics, ISCTE-IUL, Av. Forças Armadas, 1649-026, Lisbon, Portugal

    Francisco Camões & Sofia Vale

Authors
  1. Francisco Camões
    View author publications

    You can also search for this author in PubMed Google Scholar

  2. Sofia Vale
    View author publications

    You can also search for this author in PubMed Google Scholar

Corresponding author

Correspondence to Sofia Vale.

Rights and permissions

Reprints and permissions

About this article

Check for updates. Verify currency and authenticity via CrossMark

Cite this article

Camões, F., Vale, S. I feel wealthy: A major determinant of Portuguese households’ indebtedness?. Empir Econ 58, 1953–1978 (2020). https://doi.org/10.1007/s00181-018-1602-9

Download citation

  • Received:

  • Accepted:

  • Published:

  • Issue Date:

  • DOI: https://doi.org/10.1007/s00181-018-1602-9

Keywords

JEL Classification

Search

Navigation