Feeling Rich, Feeling Poor: Housing Wealth Effects and Consumption in Europe

Serhan Cevik and Sadhna Naik

No 2023/256, IMF Working Papers from International Monetary Fund

Abstract: Households across Europe are struggling with a double crisis—the worst inflation shock since the World War II and a sudden correction in house prices. There is a rich literature on how housing price cycles affect consumer spending, finding mixed results with a wide range of consumption responses to changes in housing wealth. In this paper, using quarterly data on 20 countries in Europe over the period 1980–2023, we analyze the dynamic relationship between inflation-adjusted housing wealth and consumer spending and obtain statistically significant and economically intuitive results. Household consumption responds positively and swiftly to changes in real house prices and gross disposable income as expected. Using the estimated coefficients, we can deduce that the average quarter-on-quarter decline of -1.96 percent in real house prices in the first quarter of 2023 in Europe could dampen consumer spending by about -0.51 percentage points in real terms on a cumulative basis over a horizon of eight quarters.

Keywords: House prices; wealth effects; consumer spending; Europe; housing price cycle; housing wealth effect; household consumption growth; property price dataset; price unit; consumer spending growth; depressing housing price; cost of capital; housing prices in the CEE region; house price movement; house price cycle; housing wealth; Housing prices; Disposable income; Housing; Private consumption; Income (search for similar items in EconPapers)
Pages: 16
Date: 2023-12-08
New Economics Papers: this item is included in nep-eec, nep-eur and nep-ure
References: Add references at CitEc
Citations:

Downloads: (external link)
http://www.imf.org/external/pubs/cat/longres.aspx?sk=542221 (application/pdf)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:imf:imfwpa:2023/256

Ordering information: This working paper can be ordered from
http://www.imf.org/external/pubs/pubs/ord_info.htm

Access Statistics for this paper

More papers in IMF Working Papers from International Monetary Fund International Monetary Fund, Washington, DC USA. Contact information at EDIRC.
Bibliographic data for series maintained by Akshay Modi ().