We re-examine the links 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-seven year period, 1975 through 2012Q2. 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. In our earlier version of this paper we found that households increase their spending when house prices rise, but we found no signiﬁcant decrease in consumption when house prices fall. The results presented here with the extended data now show that declines in house prices stimulate large and signiﬁcant decreases in household spending. The elasticities implied by this work are large. An increase in real housing wealth comparable to the rise between 2001 and 2005 would, over the four years, push up household spending by a total of about 4.3%. A decrease in real housing wealth comparable to the crash which took place between 2005 and 2009 would lead to a drop of about 3.5%.
Case, Karl E.; Quigley, John M.; and Shiller, Robert J., "Wealth Effects Revisited 1975-2012" (2012). Cowles Foundation Discussion Papers. 2252.