We re-examine the link between changes in housing wealth, ﬁnancial wealth, and consumer spending. We extend a panel of U.S. states observed quarterly during the seventeen-year period, 1982 through 1999, to the thirty-one year period, 1978 through 2009. Using techniques reported previously, we impute the aggregate value of owner-occupied housing, the value of ﬁnancial assets, and measures of aggregate consumption for each of the geographic units over time. We estimate regression models in levels, ﬁrst diﬀerences and in error-correction form, relating per capita consumption to per capita income and wealth. We ﬁnd a statistically signiﬁcant and rather large eﬀect of housing wealth upon household consumption. This eﬀect is consistently larger than the eﬀect of stock market wealth upon consumption. This reinforces the conclusions reported in our previous analysis. In contrast to our previous analysis, however, we do ﬁnd — based on data which include the recent volatility in asset markets — that the eﬀects of declines in housing wealth in reducing consumption are at least as large as the eﬀects of increases in housing wealth in increasing the course of household consumption.
Case, Karl E.; Quigley, John M.; and Shiller, Robert J., "Wealth Effects Revisited, 1978-2009" (2011). Cowles Foundation Discussion Papers. 2125.