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The Effect of House Prices on Consumption: Evidence from Micro Panel Data on Mortgage Borrowers (in Korean)

Author

Listed:
  • Sungho Choi

    (Korea Credit Bureau Research Center)

  • SangYoon Song

    (Department of Economics, Seoul National University)

  • Youngsik Kim

    (Department of Economics, Seoul National University)

Abstract

This paper examines the response of household consumption to house prices using South Korea household-level micro data that contain comprehensive information on homeowner's income, expenditure, debt repayments and demographic factors in the 2008-2014 waves. The dynamic panel method is used to consider the dynamic characteristics of consumption, and the system GMM method is applied to control the endogeneity problem. The main results are as follows. First, the house prices are significantly and positively related to consumption. The magnitude of the effect, however, is smaller than that of the change in income level. Second, the sensitivity of consumption to housing wealth is relatively high in groups with higher income, lower DTI, older age or having experienced the increasing-trend of house prices. Especially, the changes of house prices hardly affect consumption in groups with relatively higher DTI or lower income. Third, the effect of relaxing borrowing constraints by rising house prices is positively correlated with consumption, particularly for households that are more likely to be borrowing constrained owing to relatively higher LTV close to regulatory cap, lower income, and being the self-employed.

Suggested Citation

  • Sungho Choi & SangYoon Song & Youngsik Kim, 2015. "The Effect of House Prices on Consumption: Evidence from Micro Panel Data on Mortgage Borrowers (in Korean)," Economic Analysis (Quarterly), Economic Research Institute, Bank of Korea, vol. 21(2), pages 1-27, June.
    • Handle: RePEc:bok:journl:v:21:y:2015:i:2:p:1-27
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    Citations

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    Cited by:

    1. Jong Chil Son & Hail Park, 2020. "The Effects of Regional House Prices on Consumption in Korea: Heterogeneous Behaviors According to Homeownership Status and Lifecycle Stage," Sustainability, MDPI, vol. 12(9), pages 1-15, April.
    2. Song, Sang-yoon, 2022. "The heterogeneity of interest-induced MPC: Evidence from mortgage borrowers," International Review of Economics & Finance, Elsevier, vol. 80(C), pages 402-417.
    3. Jung, Daesun & Kim, Young Sik, 2020. "Income volatility, household leverage, and consumption in Korea," Japan and the World Economy, Elsevier, vol. 53(C).
    4. Wonhyeok Kim & Soohyung Lee & Yoonsoo Lee, 2021. "How Do House Prices Affect Consumption Patterns Across Categories?," Korean Economic Review, Korean Economic Association, vol. 37, pages 367-398.
    5. Sang-yoon Song, 2019. "The Cash-Flow Channel of Monetary Policy: Evidence from Mortgage Borrowers," Working Papers 2019-20, Economic Research Institute, Bank of Korea.

    More about this item

    Keywords

    System GMM; House prices; Wealth effect; Consumption; Borrowing constraint;
    All these keywords.

    JEL classification:

    • C23 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Models with Panel Data; Spatio-temporal Models
    • D12 - Microeconomics - - Household Behavior - - - Consumer Economics: Empirical Analysis
    • E21 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Consumption; Saving; Wealth

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