The Impact of the Housing Market Boom and Bust on Consumption Spending

Jeremy A Leonard

Business Economics, 2010, vol. 45, issue 2, 83-93

Abstract: While econometric evidence for the United States has consistently shown that increases in real estate wealth induce additional consumption, it does not directly speak to the effect of a substantial decrease in real estate wealth. This paper examines the real-estate wealth-consumption relationship over the past half century with a particular focus on the sharp decline in 2006–08, and finds that the wealth effect in the recent down market is significantly larger than in an up market. Additionally, wealth changes seem only to affect consumption of services and nondurable goods; there is virtually no impact on durable-goods consumption.

Date: 2010
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