Housing Demand Shocks and Households Balance Sheets

Marc Anderes (anderes@ethz.ch)
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Marc Anderes: ETH Zurich, Switzerland

No 21-492, KOF Working papers from KOF Swiss Economic Institute, ETH Zurich

Abstract: We examine the dynamic effects of housing demand shocks on a large set of U.S. macroeconomic series and detailed household balance sheet components for four wealth percentile groups. The results show that a positive housing shock translates into a large and persistent boom of economic activity, an expansion of credit and an increase of interest rates. While households of all wealth percentile groups make heavy use of home equity-based borrowing, we find a larger consumer spending sensitivity for weaker balance sheet households. This is supported by the elasticities of consumption with respect to house prices implied by our structural dynamic factor model. A historical decomposition suggests that housing demand shocks have largely contributed to the pronounced drop in poorer households’ consumption during the Great Recession. Variance decompositions indicate that the identified housing shock has high explanatory power for key economic indicators, housing indices and household balance sheet series.

Keywords: : Housing demand shocks; Household balance sheets; Bayesian dynamic factor model (search for similar items in EconPapers)
JEL-codes: D31 E21 E32 E44 R31 (search for similar items in EconPapers)
Pages: 94 pages
Date: 2021-02
New Economics Papers: this item is included in nep-mac, nep-ore and nep-ure
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