Do Changes In House Prices Affect Household Consumption? Associations Between MSA Home Prices And Household Consumption Decisions.

摘要

In the lifecycle income model, changes in the aggregate value of a person's earnings at any point in that person's life will affect consumption decisions both in the present and future periods. One such potential income event is the capital gains on the sale of household's home; thus, economic theory suggests that appreciation in an owned-home should translate to higher consumption in the present period, holding all other factors constant, as individuals smooth their consumption over their lives.;Using MSA-level Federal Home Finance Agency home price indices and the Consumer Expenditure Survey for the same MSAs in a ordinary least squares regression model, this paper attempts to find this "wealth effect" and provide estimates for changes in consumption due to shifts in home values. This study finds that, though there is no statistically significant relationship between the index level and concurrent household consumption, there is a statistically significant association between the one-quarter lagged index value and household consumption holding constant a variety of factors (most notably, income); the sign on the coefficient indicates a wealth effect exists in the data. However, when a single category of spending is further explored, the study fails to find a discernible wealth effect in the luxury good of that category despite theory predicting such an effect would be more evident given higher volatility in spending on luxury goods.;These results, when combined with the results with others, point to an area of further research and modeling to provide policymakers with more effective tools in dampening economic volatility.