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How do consumers respond to house price declines?

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  • Gathergood, John

Abstract

Movements in house prices and consumer spending are closely correlated in many developed nations. Much debate exists on whether this relationship is causal arising from either wealth effects or via borrowing constraints. This paper uses a unique survey question on consumer responses to house price falls to explain the relationship between house price movements and consumer spending among households in the United Kingdom. 30% of households report they would cut back consumption as a direct response to house price falls. Households who reported they were borrowing constrained were much more likely to report they would cut consumption.

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Bibliographic Info

Article provided by Elsevier in its journal Economics Letters.

Volume (Year): 115 (2012)
Issue (Month): 2 ()
Pages: 279-281

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Handle: RePEc:eee:ecolet:v:115:y:2012:i:2:p:279-281

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Web page: http://www.elsevier.com/locate/ecolet

Related research

Keywords: Consumer spending; Housing wealth; Wealth effects; Collateral effects;

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References

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  1. Buiter, Willem H., 2010. "Housing wealth isn't wealth," Economics - The Open-Access, Open-Assessment E-Journal, Kiel Institute for the World Economy, vol. 4(22), pages 1-29.
  2. Janine Aron & John Muellbauer & Anthony Murphy, 2010. "Credit, Housing Collateral and Consumption: Evidence from the UK, Japan and the US," Economics Series Working Papers 487, University of Oxford, Department of Economics.
  3. Orazio Attanasio & Andrew Leicester & Matthew Wakefield, 2011. "Do House Prices Drive Consumption Growth? The Coincident Cycles Of House Prices And Consumption In The Uk," Journal of the European Economic Association, European Economic Association, European Economic Association, vol. 9(3), pages 399-435, 06.
  4. Campbell, John Y. & Cocco, Joao F., 2007. "How do house prices affect consumption? Evidence from micro data," Journal of Monetary Economics, Elsevier, Elsevier, vol. 54(3), pages 591-621, April.
  5. Atif Mian & Amir Sufi, 2011. "House Prices, Home Equity-Based Borrowing, and the US Household Leverage Crisis," American Economic Review, American Economic Association, American Economic Association, vol. 101(5), pages 2132-56, August.
  6. Richard Disney & John Gathergood & Andrew Henley, 2010. "House Price Shocks, Negative Equity, and Household Consumption in the United Kingdom," Journal of the European Economic Association, MIT Press, MIT Press, vol. 8(6), pages 1179-1207, December.
  7. Ai, Chunrong & Norton, Edward C., 2003. "Interaction terms in logit and probit models," Economics Letters, Elsevier, Elsevier, vol. 80(1), pages 123-129, July.
  8. Matthew D. Shapiro & Joel B. Slemrod, 2009. "Did the 2008 Tax Rebates Stimulate Spending?," NBER Working Papers 14753, National Bureau of Economic Research, Inc.
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