Published online by Cambridge University Press: 09 January 2024
We study household credit responses to Hurricane Harvey using new, geographically granular data on credit cards, mortgages, and flooding. Estimates from a differences-in-differences design that exploits the flooding gradient show that affected households only borrow at low-interest rates, often using promotional (zero interest) cards and that they quickly pay down balances. We also document that take-up of forbearance (borrowing by missing mortgage payments without penalty) increases with flooding. These results are attenuated in floodplains, particularly in structures subject by code to physical hardening. Our results indicate that credit acts as a substitute for the lack of physical hardening.
We thank an anonymous referee, Jennifer Conrad (the editor), Emily Gallagher, Justin Gallagher, Raven Molloy, Paul Willen, and participants at the 2019 Urban Economic Association Meetings, the 2019 Office of Financial Research/Cleveland Federal Reserve Bank Conference on Financial Stability, and the 2021 NBER Conference on Innovative Data in Household Finance for helpful comments. The views and opinions expressed in this article are solely those of the authors and do not reflect those of the Board of Governors or the Federal Reserve System.