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House Prices, Consumption and the Role of Non-Mortgage Debt

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  • Katya Kartashova
  • Ben Tomlin

Abstract

This paper examines the relationship between house prices and consumption, through the use of debt. Using unique Canadian household-level data that reports the uses of debt, we begin by looking at the relationship between house prices and debt. Using quantile regression, we find a positive and significant relationship between regional house prices and total household debt all along the conditional debt distribution. This suggests that the household-level relationship between house prices and debt goes beyond the purchase of real estate. We then find a positive relationship between house prices and non-mortgage debt (the sum of secured lines of credit, unsecured lines of credit, leases and other consumer loans, except for credit cards) for homeowners. Combining these results with the reported uses of non-mortgage debt allows us to connect house prices and nonhousing consumption - this connection is new to the literature on house prices and consumption. We conclude that the increases in house prices over the 1999-2007 period were, indeed, associated with an increase in non-mortgage debt and non-housing consumption. Our results can be thought of as the establishment of a conservative lower bound for the overall relationship between house prices and aggregate consumption.

Suggested Citation

  • Katya Kartashova & Ben Tomlin, 2013. "House Prices, Consumption and the Role of Non-Mortgage Debt," Staff Working Papers 13-2, Bank of Canada.
  • Handle: RePEc:bca:bocawp:13-2
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    References listed on IDEAS

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    Cited by:

    1. Lucia Alessi & Eric Ghysels & Luca Onorante & Richard Peach & Simon Potter, 2014. "Central Bank Macroeconomic Forecasting During the Global Financial Crisis: The European Central Bank and Federal Reserve Bank of New York Experiences," Journal of Business & Economic Statistics, Taylor & Francis Journals, vol. 32(4), pages 483-500, October.
    2. John Muellbauer & Pierre St-Amant & David Williams, 2015. "Credit Conditions and Consumption, House Prices and Debt: What Makes Canada Different?," Staff Working Papers 15-40, Bank of Canada.
    3. Jan Bruha & Jaromir Tonner, 2014. "The Czech Housing Market Through the Lens of a DSGE Model Containing Collateral-Constrained Households," Working Papers 2014/09, Czech National Bank, Research Department.
    4. Damar, H. Evren & Gropp, Reint & Mordel, Adi, 2013. "Bank's financial distress, lending supply and consumption expenditure," SAFE Working Paper Series 39, Research Center SAFE - Sustainable Architecture for Finance in Europe, Goethe University Frankfurt.
    5. Damar, H. Evren & Gropp, Reint & Mordel, Adi, 2013. "Bank's financial distress, lending supply and consumption expenditure," SAFE Working Paper Series 39, Research Center SAFE - Sustainable Architecture for Finance in Europe, Goethe University Frankfurt.

    More about this item

    Keywords

    Credit and credit aggregates; Domestic demand and components;

    JEL classification:

    • E21 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Consumption; Saving; Wealth
    • D10 - Microeconomics - - Household Behavior - - - General
    • D14 - Microeconomics - - Household Behavior - - - Household Saving; Personal Finance
    • D31 - Microeconomics - - Distribution - - - Personal Income and Wealth Distribution

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