Liquidity Constraints in the U.S. Housing Market

Abstract We study the severity of liquidity constraints in U.S. housing market using a life-cycle model with uninsurable idiosyncratic risks which houses are illiquid, but agents can extract home equity by refinancing their mortgages. The implies that four-fifths homeowners constrained and willing to pay an average 13 cents additional dollar from home. Most value for precautionary reasons, anticipating possibility income declines need make mortgage payments. reproduces well observed response consumption tax rebates relief programs predicts large welfare gains policies aimed at providing temporary homeowners.