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Of House and Home-Related Goods: The Home Purchase Channel of Expenditure

Author

Listed:
  • Giovanni Favara
  • James Graham
  • Geng Li

Abstract

Home-related spending in categories such as furnishings, renovations, and repairs is tied to housing market activity, with significant implications for aggregate expenditure dynamics. We refer to this relationship as the home purchase channel of expenditure. Using household-level panel data we estimate that home purchases lead to sizable increases in home-related spending, but not to increases in goods and services unrelated to home purchase. These findings are robust to the use of close-control groups and placebo tests. We then build a heterogeneous household model with housing, home renovations, and home-related durables that is calibrated to match our household-level evidence. Model simulations of housing market shocks generate large fluctuations in home-related and total expenditure. We show that the home purchase channel amplifies aggregate expenditure dynamics, with home-related spending accounting for around half of total spending fluctuations over the housing cycle.

Suggested Citation

  • Giovanni Favara & James Graham & Geng Li, 2025. "Of House and Home-Related Goods: The Home Purchase Channel of Expenditure," CAMA Working Papers 2025-32, Centre for Applied Macroeconomic Analysis, Crawford School of Public Policy, The Australian National University.
    • Handle: RePEc:een:camaaa:2025-32
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    File URL: https://crawford.anu.edu.au/sites/default/files/2025-06/32_2025_Favara_Graham_Li_0.pdf
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    More about this item

    Keywords

    housing; home purchase; household spending; housing cycle;
    All these keywords.

    JEL classification:

    • D12 - Microeconomics - - Household Behavior - - - Consumer Economics: Empirical Analysis
    • D15 - Microeconomics - - Household Behavior - - - Intertemporal Household Choice; Life Cycle Models and Saving
    • E21 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Consumption; Saving; Wealth
    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
    • R31 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - Real Estate Markets, Spatial Production Analysis, and Firm Location - - - Housing Supply and Markets

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