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House Price Gains and U.S. Household Spending from 2002 to 2006

Listed author(s):
  • Atif Mian
  • Amir Sufi

We examine the effect of rising U.S. house prices on borrowing and spending from 2002 to 2006. There is strong heterogeneity in the marginal propensity to borrow and spend. Households in low income zip codes aggressively liquefy home equity when house prices rise, and they increase spending substantially. In contrast, for the same rise in house prices, households living in high income zip codes are unresponsive, both in their borrowing and spending behavior. The entire effect of housing wealth on spending is through borrowing, and, under certain assumptions, this spending represents 0.8% of GDP in 2004 and 1.3% of GDP in 2005 and 2006. Households that borrow and spend out of housing gains between 2002 and 2006 experience significantly lower income and spending growth after 2006.

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File URL: http://www.nber.org/papers/w20152.pdf
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Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 20152.

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Date of creation: May 2014
Handle: RePEc:nbr:nberwo:20152
Note: CF EFG ME
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