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Home-buyers, Housing and the Macroeconomy

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  • Case, Karl E.
  • Quigley, John M.
  • Shiller, Robert J.

Abstract

We present the results of a new survey of US home-buyers in 2002. The most important finding is that the survey suggests that home-buyers’ expectations are substantially affected by recent experience. Even after a long boom that has taken prices to very high levels, home-buyers typically have expectations that prices will show double-digit annual price growth over the next 10 years, apparently with only a modest level of risk. We conjecture that these characteristics of individuals’ expectations may contribute to the substantial swings that are observed in housing prices. Changes in housing wealth, especially if they are perceived as long-lasting, may have substantial macroeconomic effects through private consumption. In the second part of the paper, we examine the link between increases in housing wealth, financial wealth, and consumer spending. We rely upon a panel of 14 countries observed annually for various periods during the past 25 years and a panel of US states observed quarterly during the 1980s and 1990s. We find a statistically significant and rather large effect of housing wealth upon household consumption.

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Bibliographic Info

Paper provided by Berkeley Program on Housing and Urban Policy in its series Berkeley Program on Housing and Urban Policy, Working Paper Series with number qt0v59r392.

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Date of creation: 18 Nov 2003
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Handle: RePEc:cdl:bphupl:qt0v59r392

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Keywords: Social and Behavioral Sciences;

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References

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  1. Yoshikawa, Hiroshi & Ohtaka, Fumio, 1989. "An analysis of female labor supply, housing demand and the saving rate in Japan," European Economic Review, Elsevier, vol. 33(5), pages 997-1023, May.
  2. Karl E. Case & Robert J. Shiller, 1990. "Forecasting Prices and Excess Returns in the Housing Market," NBER Working Papers 3368, National Bureau of Economic Research, Inc.
  3. Barot, Bharat & Yang, Zan, 2002. "House Prices and Housing Investment in Sweden and the United Kingdom: Econometric Analysis for the Period 1970-1998," Working Paper 80, National Institute of Economic Research.
  4. William G. Gale & John Sabelhaus, 1999. "Perspectives on the Household Saving Rate," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 30(1), pages 181-224.
  5. Nikola Dvornak & Marion Kohler, 2003. "Housing Wealth, Stock Market Wealth and Consumption: A Panel Analysis for Australia," RBA Research Discussion Papers rdp2003-07, Reserve Bank of Australia.
  6. Karl E. Case & Robert J. Shiller, 1988. "The Efficiency of the Market for Single-Family Homes," NBER Working Papers 2506, National Bureau of Economic Research, Inc.
  7. Ohtake, F. & Horioka, C.Y., 1995. "Saving Motives in Japan," ISER Discussion Paper 0392, Institute of Social and Economic Research, Osaka University.
  8. Elliott, J Walter, 1980. "Wealth and Wealth Proxies in a Permanent Income Model," The Quarterly Journal of Economics, MIT Press, vol. 95(3), pages 509-35, November.
  9. Levin, Laurence, 1998. "Are assets fungible?: Testing the behavioral theory of life-cycle savings," Journal of Economic Behavior & Organization, Elsevier, vol. 36(1), pages 59-83, July.
  10. Englund, Peter & Ioannides, Yannis M., 1997. "House Price Dynamics: An International Empirical Perspective," Journal of Housing Economics, Elsevier, vol. 6(2), pages 119-136, June.
  11. Maddala, G S & Wu, Shaowen, 1999. " A Comparative Study of Unit Root Tests with Panel Data and a New Simple Test," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, vol. 61(0), pages 631-52, Special I.
  12. Skinner, Jonathan, 1989. "Housing wealth and aggregate saving," Regional Science and Urban Economics, Elsevier, vol. 19(2), pages 305-324, May.
  13. Karl E. Case & Robert J. Shiller, 1988. "The Behavior of Home Buyers in Boom and Post-Boom Markets," NBER Working Papers 2748, National Bureau of Economic Research, Inc.
  14. Engelhardt, Gary V., 1996. "House prices and home owner saving behavior," Regional Science and Urban Economics, Elsevier, vol. 26(3-4), pages 313-336, June.
  15. Peek, Joe, 1983. "Capital Gains and Personal Saving Behavior," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 15(1), pages 1-23, February.
  16. Goodman, John Jr. & Ittner, John B., 1992. "The accuracy of home owners' estimates of house value," Journal of Housing Economics, Elsevier, vol. 2(4), pages 339-357, December.
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Citations

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Cited by:
  1. Robert J. Shiller, 2008. "Derivatives Markets for Home Prices," Cowles Foundation Discussion Papers 1648, Cowles Foundation for Research in Economics, Yale University.
  2. Randal Verbrugge, 2009. "The Puzzling Divergence of Rents and User Costs, 1980-2004," Working Papers 422, U.S. Bureau of Labor Statistics.
  3. Greg Tkacz & Carolyn Wilkins, 2006. "Linear and Threshold Forecasts of Output and Inflation with Stock and Housing Prices," Working Papers 06-25, Bank of Canada.
  4. Thesia I. Garner & Randal Verbrugge, 2007. "Puzzling Divergence of U.S. Rents and User Costs, 1980-2004: Summary and Extensions," Working Papers 409, U.S. Bureau of Labor Statistics.
  5. Zheng Song & Giovanni Favara, 2009. "House Price Dynamics with Heterogeneous Expectations," 2009 Meeting Papers 775, Society for Economic Dynamics.
  6. Favara, Giovanni & Song, Zheng, 2014. "House price dynamics with dispersed information," Journal of Economic Theory, Elsevier, vol. 149(C), pages 350-382.
  7. Yuming Fu & Wenlan Qian & Bernard Yeung, 2013. "Speculative Investors and Tobin’s Tax in the Housing Market," NBER Working Papers 19400, National Bureau of Economic Research, Inc.
  8. Kim, Kyung-Hwan, 2004. "Housing and the Korean economy," Journal of Housing Economics, Elsevier, vol. 13(4), pages 321-341, December.

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