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How Do House Prices Affect Consumption? Evidence From Micro Data

John Campbell () and João F. Cocco

No 11534, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: Housing is a major component of wealth. Since house prices fluctuate considerably over time, it is important to understand how these fluctuations affect households' consumption decisions. Rising house prices may stimulate consumption by increasing households' perceived wealth, or by relaxing borrowing constraints. This paper investigates the response of household consumption to house prices using UK micro data. We estimate the largest effect of house prices on consumption for older homeowners, and the smallest effect, insignificantly different from zero, for younger renters. This finding is consistent with heterogeneity in the wealth effect across these groups. In addition, we find that regional house prices affect regional consumption growth. Predictable changes in house prices are correlated with predictable changes in consumption, particularly for households that are more likely to be borrowing constrained, but this effect is driven by national rather than regional house prices and is important for renters as well as homeowners, suggesting that UK house prices are correlated with aggregate financial market conditions.

JEL-codes: D1 G1 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-bec, nep-eec, nep-fmk, nep-geo, nep-mic and nep-ure
Date: 2005-08
Note: AP EFG ME
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Citations: View citations in EconPapers (39) Track citations by RSS feed

Published as Campbell, John Y. & Cocco, Joao F., 2007. "How do house prices affect consumption? Evidence from micro data," Journal of Monetary Economics, Elsevier, vol. 54(3), pages 591-621, April.

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Journal Article: How do house prices affect consumption? Evidence from micro data (2007) Downloads
Working Paper: How Do House Prices Affect Consumption? Evidence from Micro Data (2007) Downloads
Working Paper: How Do House Prices Affect Consumption? Evidence From Micro Data (2005) Downloads
Working Paper: How Do House Prices Affect Consumption? Evidence From Micro F. Data (2004) Downloads
Working Paper: How do house prices affect consumption? Evidence from micro data (2004)
Working Paper: How Do House Prices Affect Consumption? Evidence from Micro Data (2004)
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