Booms and Busts: Consumption, House Prices and Expectations

Orazio Attanasio (), Laura Blow, Robert Hamilton and Andrew Leicester ()

Economica, 2009, vol. 76, issue 301, pages 20-50

Abstract: Over much of the past 25 years, house price and consumption growth have been closely synchronized. Three main hypotheses for this have been proposed: increases in house prices raise household wealth and so their consumption; house price growth reduces credit constraints by increasing the collateral available to homeowners; and house prices and consumption are together influenced by common factors. Using microeconomic data, we find that the relationship between house prices and consumption is stronger for younger than older households, contradicting the wealth channel. We suggest that common causality has been the most important factor linking house prices and consumption. Copyright (c) The London School of Economics and Political Science 2008.

Date: 2009
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Working Paper: Booms and busts: consumption, house prices and expectations (2005)
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