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Housing Wealth and Consumption Growth: Evidence from a Large Panel of Households

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  • Jie Gan
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    Abstract

    This article uses a large panel dataset that tracks the housing wealth and credit card spending of 12,793 individuals in Hong Kong to study the relationship between housing wealth and household consumption. I identify a significant effect of housing wealth on consumption. A pure wealth effect can explain part of the sensitivity: households with multiple houses have much stronger consumption responses. Consistent with a relaxation of the credit constraints, mortgage refinancing significantly increases households' consumption sensitivities. However, for the majority of the households that do not refinance, consumption sensitivity appears to be due to a reduction in precautionary saving. The Author 2010. Published by Oxford University Press on behalf of The Society for Financial Studies. All rights reserved. For Permissions, please e-mail: journals.permissions@oxfordjournals.org., Oxford University Press.

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    File URL: http://hdl.handle.net/10.1093/rfs/hhp127
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    Bibliographic Info

    Article provided by Society for Financial Studies in its journal The Review of Financial Studies.

    Volume (Year): 23 (2010)
    Issue (Month): 6 (June)
    Pages: 2229-2267

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    Handle: RePEc:oup:rfinst:v:23:y:2010:i:6:p:2229-2267

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    Cited by:
    1. Yu-Fu Chen & Michael Funke & Aaron Mehrotra, 2011. "What Drives Urban Consumption in Mainland China? The Role of Property Price Dynamics," Working Papers 152011, Hong Kong Institute for Monetary Research.
    2. Funke, Michael & Paetz, Michael, 2013. "Housing prices and the business cycle: An empirical application to Hong Kong," Journal of Housing Economics, Elsevier, vol. 22(1), pages 62-76.
    3. Daniel Cooper & Karen Dynan, 2013. "Wealth shocks and macroeconomic dynamics," Public Policy Discussion Paper 13-4, Federal Reserve Bank of Boston.
    4. Arrondel, L. & Savignac, F. & Tracol, K., 2011. "Wealth Effects on Consumption Plans: French Households in the Crisis," Working papers 344, Banque de France.
    5. Vittorio Peretti & Rangan Gupta & Roula Inglesi-Lotz, 2012. "Do House Prices Impact Consumption and Interest Rate in South Africa? Evidence from a Time-Varying Vector Autoregressive Model," Working Papers 201216, University of Pretoria, Department of Economics.
    6. McCarthy, Yvonne & McQuinn, Kieran, 2013. "Price expectations, distressed mortgage markets and the housing wealth effect," Research Technical Papers 06/RT/13, Central Bank of Ireland.
    7. Wen-Chi Liao & Daxuan Zhao & Tien Sing, 2014. "Risk Attitude and Housing Wealth Effect," The Journal of Real Estate Finance and Economics, Springer, vol. 48(3), pages 467-491, April.
    8. Balasubramanyan, Lakshmi & Coulson, Edward, 2013. "Do house prices impact business starts?," Journal of Housing Economics, Elsevier, vol. 22(1), pages 36-44.

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