TY  - JOUR
AU  - Campbell,John Y.
AU  - Cocco,João F.
TI  - How Do House Prices Affect Consumption? Evidence From Micro Data
JF  - National Bureau of Economic Research Working Paper Series
VL  - No. 11534
PY  - 2005
Y2  - August 2005
UR  - http://www.nber.org/papers/w11534
L1  - http://www.nber.org/papers/w11534.pdf
N1  - Author contact info:
John Y. Campbell
Morton L. and Carole S.
Olshan Professor of Economics
Department of Economics
Harvard University
Littauer Center 213
Cambridge, MA 02138
Tel: 617/496-6448
Fax: 617/495-7730
E-Mail: john_campbell@harvard.edu

Joao Cocco
London Business School
Regent's Park
London NW1 4SA, UK
E-Mail: jcocco@london.edu
M2  - featured in NBER digest on 2005-08-08
AB  - Housing is a major component of wealth. Since house prices fluctuate considerably over time, it is important to understand how these fluctuations affect households' consumption decisions. Rising house prices may stimulate consumption by increasing households' perceived wealth, or by relaxing borrowing constraints. This paper investigates the response of household consumption to house prices using UK micro data. We estimate the largest effect of house prices on consumption for older homeowners, and the smallest effect, insignificantly different from zero, for younger renters. This finding is consistent with heterogeneity in the wealth effect across these groups. In addition, we find that regional house prices affect regional consumption growth. Predictable changes in house prices are correlated with predictable changes in consumption, particularly for households that are more likely to be borrowing constrained, but this effect is driven by national rather than regional house prices and is important for renters as well as homeowners, suggesting that UK house prices are correlated with aggregate financial market conditions.
ER  -