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Household Financial Decision-Making After Natural Disasters: Evidence from Hurricane Harvey

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Abstract
Hurricane Harvey brought more than four feet of rainfall to the Houston area in August 2017, leading to substantial flooding in many areas. Using regulatory data with detailed information on borrowing terms, we compare the borrowing response to Hurricane Harvey in parts of Houston that were more and less affected by flooding. We find that hurricane-affected households borrowed in a price-sensitive and time-limited manner, relying almost exclusively on promotional-rate credit cards and mortgage forbearance for new credit and repaying balances quickly. We find that conditional on flooding, households in FEMA-designated floodplains borrowed less. Within the floodplain, building code changes that required homes to be elevated above the floodplain dramatically reduced households’ storm-related liquidity use. Flooded borrowers in homes subject to this type of physical hardening used forbearance at the same rate as borrowers who did not experience flooding, suggesting that for natural disasters, ex ante physical hardening is a substitute for ex post credit.

Suggested Citation

  • Alejandro del Valle & Tess C. Scharlemann & Stephen H. Shore, 2022. "Household Financial Decision-Making After Natural Disasters: Evidence from Hurricane Harvey," Finance and Economics Discussion Series 2022-015, Board of Governors of the Federal Reserve System (U.S.).
    • Handle: RePEc:fip:fedgfe:2022-15
    DOI: 10.17016/FEDS.2022.015
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    File URL: https://www.federalreserve.gov/econres/feds/files/2022015pap.pdf
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    References listed on IDEAS

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    Cited by:

    1. Benjamin L. Collier & Daniel A. Hartley & Benjamin J. Keys & Jing Xian Ng, 2024. "Credit When You Need It," NBER Working Papers 32845, National Bureau of Economic Research, Inc.
    2. Shihan Xie & Victoria Wenxin Xie & Xu Zhang, 2024. "Extreme Weather and Low-Income Household Finance: Evidence from Payday Loans," Staff Working Papers 24-1, Bank of Canada.

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    More about this item

    Keywords

    Forbearance; Household behavior; Mortgages and credit; Natural disaster;
    All these keywords.

    JEL classification:

    • Q54 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Climate; Natural Disasters and their Management; Global Warming
    • D14 - Microeconomics - - Household Behavior - - - Household Saving; Personal Finance
    • G22 - Financial Economics - - Financial Institutions and Services - - - Insurance; Insurance Companies; Actuarial Studies
    • H84 - Public Economics - - Miscellaneous Issues - - - Disaster Aid

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