LIQUIDITY CONSTRAINTS, HOUSE PRICE SHOCKS AND HOUSEHOLD CONSUMPTION: A KOREAN CASE STUDY

Using panel data from Korea’s Survey of Household Finances and Living Conditions, this study examines how down payment restrictions affect household consumption during home purchases. Liquidity-constrained households are defined as new homebuyers with mortgage debt, and variation in house price expectations is used to isolate constraint effects. Panel regression results show that constrained households’ expecting price increases and significantly reduces consumption, which is not visible without accounting for expectations. Debt-to-income (DTI), but not loan-to-value (LTV), ratios predict this behavior. The findings underscore the importance of expectations and suggest that DTI limits are more effective macroprudential policy tools than LTV.