How do consumers respond to house price declines?

John Gathergood

Economics Letters, 2012, vol. 115, issue 2, 279-281

Abstract: Movements in house prices and consumer spending are closely correlated in many developed nations. Much debate exists on whether this relationship is causal arising from either wealth effects or via borrowing constraints. This paper uses a unique survey question on consumer responses to house price falls to explain the relationship between house price movements and consumer spending among households in the United Kingdom. 30% of households report they would cut back consumption as a direct response to house price falls. Households who reported they were borrowing constrained were much more likely to report they would cut consumption.

Keywords: Consumer spending; Housing wealth; Wealth effects; Collateral effects (search for similar items in EconPapers)
JEL-codes: D12 E21 R21 (search for similar items in EconPapers)
Date: 2012
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Citations: View citations in EconPapers (4)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:ecolet:v:115:y:2012:i:2:p:279-281

DOI: 10.1016/j.econlet.2011.12.053

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