Housing Collateral and Household Debt: An Analysis for Different European Economies

The aim of this work is to analyse how household wealth varies according to fluctuations in the housing market. What is deepened, in fact, is the relation between house prices and household debt when houses can be used as borrowing collaterals. So, resting on the economic literature that tries to explain this relation, the work aims to explore it using two approaches. The first is based on a theoretical analysis. It focuses on the effects of variations in housing market prices on household economic decisions. The second approach is an empirical one. An OLS model is used after estimating household expectations with an autoregressive process. The goal of this analysis is studying the relation between expected house prices and household debt for a group of European countries in the period 1995-2019. The results of the econometric analysis, considered the heterogeneity of legal systems and differences in financial market regulation, suggest a statistically significant relation for countries in which financial markets show more imperfections. However, the relation is also significant and even stronger for countries where access to credit is easier and houses can be used as borrowing collaterals even for expenditure purposes.