Booms and Busts: Consumption, House Prices and Expectations
Article first published online: 15 JUL 2008
© The London School of Economics and Political Science 2008
Volume 76, Issue 301, pages 20–50, February 2009
How to Cite
ATTANASIO, O. P., BLOW, L., HAMILTON, R. and LEICESTER, A. (2009), Booms and Busts: Consumption, House Prices and Expectations. Economica, 76: 20–50. doi: 10.1111/j.1468-0335.2008.00708.x
- Issue published online: 23 DEC 2008
- Article first published online: 15 JUL 2008
- Final version received 25 February 2008.
Over much of the past 25 years, house price and consumption growth have been closely synchronized. Three main hypotheses for this have been proposed: increases in house prices raise household wealth and so their consumption; house price growth reduces credit constraints by increasing the collateral available to homeowners; and house prices and consumption are together influenced by common factors. Using microeconomic data, we find that the relationship between house prices and consumption is stronger for younger than older households, contradicting the wealth channel. We suggest that common causality has been the most important factor linking house prices and consumption.