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Housing, credit and consumer expenditure

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  • John N. Muellbauer

Abstract

Many factors have contributed to the development of credit markets, easing access of households to credit. This paper considers the implications of easier credit for the influence of higher house prices on consumer expenditure. It argues that with poorly developed credit markets, the effect is likely to be negative, but becomes positive as access to housing collateral increases and down-payments for first time homebuyers fall in relation to values. The implications for differences between countries and changes in consumer behaviour over time are explored. Previous studies are reviewed: the omission of credit liberalization and other controls has often biased estimates of housing 'wealth' effects on consumption. New empirical estimates for the U.K. and U.S. suggest that there was no housing 'wealth effect' before credit market liberalization, but that the housing collateral effect is now significant, larger than the stock market wealth effect, and about twice as large in the U.S. as the U.K.

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Bibliographic Info

Article provided by Federal Reserve Bank of Kansas City in its journal Proceedings - Economic Policy Symposium - Jackson Hole.

Volume (Year): (2007)
Issue (Month): ()
Pages: 267- 334

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Handle: RePEc:fip:fedkpr:y:2007:p:267-334

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Keywords: Housing ; Consumer behavior ; Credit;

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Citations

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Cited by:
  1. Fisher, Lance A. & Otto, Glenn & Voss, Graham M., 2010. "The response of Australian consumption to housing wealth," Journal of Macroeconomics, Elsevier, vol. 32(1), pages 284-299, March.
  2. John V. Duca & John Muellbauer & Anthony Murphy, 2010. "Housing markets and the financial crisis of 2007-2009: lessons for the future," LSE Research Online Documents on Economics 33613, London School of Economics and Political Science, LSE Library.
  3. Ricardo M. Sousa, 2006. "Consumption, (Dis)Aggregate Wealth and Asset Returns," Computing in Economics and Finance 2006 212, Society for Computational Economics.
  4. Chen, Nan-Kuang & Cheng, Han-Liang & Mao, Ching-Sheng, 2012. "House price, mortgage premium, and business fluctuations," Economic Modelling, Elsevier, vol. 29(4), pages 1388-1398.
  5. Christian Dreger & Konstantin A. Kholodilin, 2011. "An Early Warning System to Predict the House Price Bubbles," Discussion Papers of DIW Berlin 1142, DIW Berlin, German Institute for Economic Research.
  6. Edward E. Leamer, 2007. "Housing IS the Business Cycle," NBER Working Papers 13428, National Bureau of Economic Research, Inc.
  7. Christian Dreger & Hans-Eggert Reimers, 2012. "The long run relationship between private consumption and wealth: common and idiosyncratic effects," Portuguese Economic Journal, Springer, vol. 11(1), pages 21-34, April.
  8. Guglielmo Maria Caporale & Mauro Costantini & Antonio Paradiso, 2012. "Re-examining the Decline in the US Saving Rate: The Impact of Mortgage Equity Withdrawal," CESifo Working Paper Series 3897, CESifo Group Munich.
  9. Gete, Pedro, 2009. "Housing Markets and Current Account Dynamics," MPRA Paper 20957, University Library of Munich, Germany, revised 24 Feb 2010.
  10. Alessio Ciarlone, 2012. "Wealth effects in emerging economies," Temi di discussione (Economic working papers) 843, Bank of Italy, Economic Research and International Relations Area.
  11. Dreger, Christian & Kholodilin, Konstantin A., 2012. "An early warning system to predict the speculative house price bubbles," Economics Discussion Papers 2012-44, Kiel Institute for the World Economy.
  12. Piet-Hein Van Eeghen, 2011. "Rethinking equilibrium conditions in macromonetary theory: A conceptually rigorous approach," Working Papers 255, Economic Research Southern Africa.
  13. R. Calcagno & E. Fornero & M. Rossi, 2009. "The Effect of House Prices on Household Consumption in Italy," The Journal of Real Estate Finance and Economics, Springer, vol. 39(3), pages 284-300, October.
  14. Charles Calomiris & Stanley D. Longhofer & William Miles, 2009. "The (Mythical?) Housing Wealth Effect," NBER Working Papers 15075, National Bureau of Economic Research, Inc.
  15. Xiao, Wei, 2013. "Learning about monetary policy rules when the housing market matters," Journal of Economic Dynamics and Control, Elsevier, vol. 37(3), pages 500-515.

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