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Has The Effect Of Housing Wealth On Household Consumption Been Overestimated New Evidences On Magnitude And Allocation
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Book Synopsis Has the Effect of Housing Wealth on Household Consumption Been Overestimated? New Evidences on Magnitude and Allocation by : Linna Zhu
Download or read book Has the Effect of Housing Wealth on Household Consumption Been Overestimated? New Evidences on Magnitude and Allocation written by Linna Zhu and published by . This book was released on 2019 with total page 27 pages. Available in PDF, EPUB and Kindle. Book excerpt: The effect of housing wealth on household consumption is puzzling as existing empirical results do not match with theoretical predictions. Existing theories - life cycle theory, permanent income hypothesis and user cost model - suggest that housing wealth impact should be small. However, most prior studies find that Marginal Propensity to Consume (MPC) out of housing wealth ranges between 0.04 to 0.09, indicating material impact of housing wealth on household consumption. Motivated by this discordance, this study uses the Panel Study of Income Dynamics to provide a step by step analysis to show how the housing wealth effect decreases as biases from unobserved variables are properly addressed. Once households' unobserved preferences towards consumption and their future expected income are controlled for, our estimated MPC drops significantly. We also directly control for home equity extraction to disentangle the pure wealth effect channel and the collateral channel. Our findings show that a one percent increase in perceived housing wealth is associated with 0.01-0.02 percent increase in real, non-housing consumption after directly controlling for the collateral channel. Our estimated magnitude of housing wealth effect is much smaller than previous findings. Additionally, we find heterogeneity in MPCs across consumption categories - consumptions that are necessary in daily lives such as food and transportation do not respond to changes in perceived housing wealth while households increase their spending on clothes and recreation as housing wealth increases. We also employ an IV approach to disentangle permanent and transitory housing wealth shocks. Our results indicate that it is the deviation between perceived house price appreciation rate and the real house price appreciation rate in fundamental values that drives this small magnitude of MPC out of housing wealth in the short run (in cloth and recreation) and this housing wealth effect will move towards to zero in the long run as the perception converges with the fundamental values.
Book Synopsis Analyzing the Effects of Financial and Housing Wealth on Consumption using Micro Data by : Carlos Caceres
Download or read book Analyzing the Effects of Financial and Housing Wealth on Consumption using Micro Data written by Carlos Caceres and published by International Monetary Fund. This book was released on 2019-05-24 with total page 32 pages. Available in PDF, EPUB and Kindle. Book excerpt: This paper analyzes the existence of “wealth effects” derived from net equity (in the form of housing, financial assets, and total net worth) on consumption. The study uses longitudinal household-level data?from the Panel Study of Income Dynamics (PSID) ?covering about 7,000-9,000 households in the U.S., with the estimations carried over the period 1999-2017. Overall, wealth effects are found to be relatively large and significant for housing wealth, but less so for other types of wealth, including stocks. Furthermore, the analysis shows how these estimated marginal propensities to consume (MPC) from wealth are closely linked to household characteristics, including income and demographic factors. Finally, underlying structural changes in household characteristics point to potentially lower aggregate MPCs from wealth going forward.
Book Synopsis Housing Wealth and Consumption Growth by : Jie Gan
Download or read book Housing Wealth and Consumption Growth written by Jie Gan and published by . This book was released on 2007 with total page 44 pages. Available in PDF, EPUB and Kindle. Book excerpt: This paper uses a large panel dataset that tracks the housing wealth and spending behavior of 12,793 individuals in Hong Kong to study how housing wealth affects household consumption. Housing wealth is measured based on the repeated-sales price indices of nine districts in Hong Kong, which are estimated using government registry of all the 900,000 repeated housing transactions. Consumption is measured by credit card charges provided by the five largest credit card issuers in Hong Kong. These detailed data make it possible to identify consumption responses to housing wealth based on time-series variation within individual households (through household fixed effects). Further, rich variations across households help pin down the mechanism of the observed consumption sensitivity.I find a significant effect of housing wealth on consumption. Such an effect seems to be on account of a reduction in precautionary saving, as opposed to relaxation of borrowing constraints. In particular, consumption sensitivity exists even in the absence of refinancing and occurs only among less leveraged households and younger households who behave like quot;buffer stockquot; consumers (Gourinchas and Parker, 2002). Finally, consumption does not respond to predictable changes in housing wealth, which is inconsistent with liquidity constraints. The results highlight the importance of housing wealth in influencing consumption even in the absence of refinancing and relaxation of credit constraints.
Book Synopsis Essays on the Household-level Effects of House Price Growth by : Claudia Ayanna Sitgraves
Download or read book Essays on the Household-level Effects of House Price Growth written by Claudia Ayanna Sitgraves and published by . This book was released on 2009 with total page 334 pages. Available in PDF, EPUB and Kindle. Book excerpt: This dissertation explores the effects of fluctuations in housing values on household saving and investment decisions. Chapter 1 examines the relationship between changes in housing values and household saving decisions. Fluctuations in housing values may affect household saving and consumption by increasing households' perceived wealth, or by relaxing borrowing constraints. Moreover, the increased liquidity of home equity during the recent housing boom may have led household behavior to respond more than in past years to changes in housing wealth. This chapter is the first analysis to provide evidence from household-level microdata suggesting that the housing wealth effect may have increased in line with increased access to housing-collateralized debt. Using data from the Survey of Income and Program Participation for the years 1984 - 2003, I estimate an average elasticity of household active saving with respect to MSA-level house prices of -0.222, which corresponds to a 1 cent decrease in annual active saving when housing wealth increases by 1 dollar. When I estimate housing wealth effects separately between 1984 and 1990, and between 1996 and 2003, I find smaller effects during the earlier period, but large and significant effects during the later period. During the later period, I estimate an average elasticity of household active saving with respect to MSA-level house prices of -1.044, which corresponds to a 3 cent decrease in annual active saving when housing wealth increases by 1 dollar. Further evidence comparing the magnitude of the wealth effect between different subpopulations -- older homeowners versus younger homeowners, and recent homebuyers versus those with longer tenure -- suggests that a relaxation of liquidity constraints, rather than changes in the composition of the homeowner population, is a central factor contributing to the increase in the housing wealth effect. Chapter 2 explores the connection between growth in housing values, uncertainty over future housing values, and property owners' investments in housing. Residential housing is a significant share of most American households' asset holdings. As such, the decision to build, to buy, or to make significant improvements to a home is driven not only by consumption considerations, but is also an investment decision. By modeling property owners' housing investment decisions using a framework of optimal capital investment where investments are irreversible and there is uncertainty in future asset values, this analysis theoretically predicts and empirically estimates the extent to which property owners respond to changes in the profitability of housing investment by making investments in their stock of housing. Using a unique dataset of residential sales, geographic information, and the universe of building permits issued in Los Angeles between 1999 and 2008, and focusing on nonresident landlords and "improver-movers"--Owner-occupiers who make improvements to their properties and subsequently sell the property, I find that when housing values increase, property owners are more likely to make capital investments, and that the value and square footage of these investments is larger. When house price volatility is high, property owners are less likely to make investments. However, conditional on the decision to invest, the value and square footage of investments is larger. This result is shown to be a consequence of property owners' optimally delaying capital investment when uncertainty over future prices is high. Chapter 3 documents the extent to which residential real estate development is cyclical - exhibiting periods of rapid expansion followed by periods of rapid contraction - using New York City as a case study. This chapter provides an overview of residential development activity in New York City during the years 2000 - 2008. In this analysis, I describe the effects of this real estate "boom" on the housing market in New York City during these years, and characterize the long-term effects of the "boom" and subsequent "bust" in residential development on the composition of the City's housing stock. Economic theories of cyclicality in real estate markets, outlined in this chapter, show that uncertainty over the exact timing of price declines coupled with a long development lag can lead to buildings being completed and new units entering the market even as prices decline. Although the elasticity of housing supply is lower in New York City than in other areas, building activity tends to follow a boom-and-bust pattern similar to other areas. Neighborhoods with higher levels of amenities experienced more growth in residential housing supply, and public involvement in development activity (both to facilitate and to restrict development) became less important for builders as the boom progressed. As building activity slows, City officials and developers are taking steps to ensure that stalled construction sites, rather than becoming eyesores and safety hazards, are preserved for future use.
Book Synopsis How Large is the Housing Wealth Effect? by : Chris Carroll
Download or read book How Large is the Housing Wealth Effect? written by Chris Carroll and published by . This book was released on 2006 with total page 36 pages. Available in PDF, EPUB and Kindle. Book excerpt: This paper presents a simple new method for estimating the size of 'wealth effects' on aggregate consumption. The method exploits the well-documented sluggishness of consumption growth (often interpreted as 'habits' in the asset pricing literature) to distinguish between short-run and long-run wealth effects. In U.S. data, we estimate that the immediate (next-quarter) marginal propensity to consume from a $1 change in housing wealth is about 2 cents, with a final long-run effect around 9 cents. Consistent with several recent studies, we find a housing wealth effect that is substantially larger than the stock wealth effect. We believe that our approach is preferable to the currently popular cointegration- based estimation methods, because neither theory nor evidence justifies faith in the existence of a stable cointegrating vector.
Book Synopsis The Housing Wealth Effect by : Dany Kessel
Download or read book The Housing Wealth Effect written by Dany Kessel and published by . This book was released on 2019 with total page 76 pages. Available in PDF, EPUB and Kindle. Book excerpt: We exploit a quasi-experiment to provide new evidence on the magnitude of the housing wealth effect. We estimate an immediate shock of approximately $-$15% to house prices close to one of Stockholm's airports after its operations were unexpectedly continued. This source of price variation is ideal for identifying housing wealth effects since it is unrelated to macroeconomic conditions. We estimate a micro elasticity of 0.45 among purchasers of new cars. The implied aggregate MPC on cars is however only 0.13 cents per dollar. The response is entirely concentrated to homeowners with a loan-to-value ratio between 0.6 and 0.8.
Book Synopsis The Housing Wealth Effect by : Roine Vestman
Download or read book The Housing Wealth Effect written by Roine Vestman and published by . This book was released on 2023 with total page 0 pages. Available in PDF, EPUB and Kindle. Book excerpt: Empirical studies have estimated a big range of consumption response sizes to changes in house prices. Using a quasi-experiment, we estimate a shock of -19.4 percent to house prices in the area surrounding an airport in Stockholm after its operations were unexpectedly continued as a result of political bargaining behind closed doors. This source of price divergence is ideal for identifying housing wealth effects since it is local and unrelated to variations in macroeconomic conditions. Using a household data set with information on the location of primary residence relative to the airport, we find a short-run elasticity with respect to new car purchases of 0.39, corresponding to a one-year marginal propensity for car expenditures of 0.12 cents per dollar lost in housing wealth. Households with high loan-to-value ratios and little bank deposits respond the most. A quantitative model is consistent with the empirical findings and pinpoints important determinants of the response size, which may explain the variation in previous estimates.
Book Synopsis Housing, Consumption, and Credit Constraints by : Andreas Lehnert
Download or read book Housing, Consumption, and Credit Constraints written by Andreas Lehnert and published by . This book was released on 2004 with total page 72 pages. Available in PDF, EPUB and Kindle. Book excerpt: "I test the credit-market effects of housing wealth shocks by estimating the consumption elasticity of house price shocks among households in different age quintiles. Younger households face faster expected income growth and hence would like to borrow more than older households. I estimate consumption elasticities from housing wealth by age quintile to be (4; 0; 3; 8; 3) percent. As predicted by theory, the youngest group has a higher elasticity of consumption than the next two age quintiles. That the consumption of the age quintile on the verge of retirement is responsive to housing wealth is also not surprising: I show that these households are likeliest to "downsize" their house and thus realize any capital gains"--Abstract.
Book Synopsis The Effects of Housing and Financial Wealth on Personal Consumption by : Antonio Bassanetti
Download or read book The Effects of Housing and Financial Wealth on Personal Consumption written by Antonio Bassanetti and published by . This book was released on 2012 with total page 32 pages. Available in PDF, EPUB and Kindle. Book excerpt: In this paper we focus on Italian aggregate quarterly time series covering the sample period 1980-2006 and test the presence and size of wealth effects on consumption, taking separately account of financial assets and residential property on the basis of new stock measures. We find sound evidence in favour of a cointegrating relation, in which both wealth components display the expected, positive effect on households' consumption. In particular, our results point to a lower marginal propensity to consume out of housing than out of non housing net worth, with a respective size of 2 and 4 cents. Following the estimate of a vector error correction model, we discuss the role played by transitory and permanent shocks in driving changes in the variables we consider. We have found that both consumption and wealth respond almost exclusively to permanent shocks, which are the sole determinants of the common stochastic trend in our theoretical set-up. As a result, we are confident that our estimates of wealth coefficients in the cointegrating vector match very closely the true long run marginal propensity to consume for Italian households.
Book Synopsis Housing Wealth Effects by : Eric S. Belsky
Download or read book Housing Wealth Effects written by Eric S. Belsky and published by . This book was released on 2004 with total page 62 pages. Available in PDF, EPUB and Kindle. Book excerpt:
Book Synopsis Wealth Effects on Household Final Consumption by : Yener Coskun
Download or read book Wealth Effects on Household Final Consumption written by Yener Coskun and published by . This book was released on 2018 with total page 32 pages. Available in PDF, EPUB and Kindle. Book excerpt: The study primarily explores the linkage between wealth effects, arising from stock and housing market channels, and household final consumption for 11 advanced countries over the period from 1970 Q1 to 2015 Q4. As a modelling strategy, we employ regression analysis through the common correlated effects mean group (CCEMG) estimator, as well as Durbin-Hausman cointegration and Dumitrescu and Hurlin (2012) causality tests. The study provides various pieces of evidence through whole-panel and country-level analyses. In this respect, we find that consumption is mostly explained by income and housing wealth is positively and significantly correlated with consumption. As counter-intuitive evidence, we detect a negative linkage between consumption and stock wealth. The evidence also suggests a long-run cointegration relationship among consumption, income, interest rates, housing wealth, and stock wealth. Moreover, we find bidirectional causality between consumption and income, stock wealth, housing wealth, and interest rates. Overall, the evidence implies that housing wealth, rather than stock wealth, is the primary source of consumption growth in advanced countries.
Book Synopsis How Do House Prices Affect Consumption? Evidence from Micro Data by : John Y. Campbell
Download or read book How Do House Prices Affect Consumption? Evidence from Micro Data written by John Y. Campbell and published by . This book was released on 2010 with total page 76 pages. Available in PDF, EPUB and Kindle. Book excerpt: 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.
Book Synopsis The Impact of Homeowners' Housing Wealth Misestimation on Consumption and Saving Decisions by : Sumit Agarwal
Download or read book The Impact of Homeowners' Housing Wealth Misestimation on Consumption and Saving Decisions written by Sumit Agarwal and published by . This book was released on 2006 with total page 0 pages. Available in PDF, EPUB and Kindle. Book excerpt: Using a unique data set of 81,943 house value estimates by the homeowners and their financial institution, I find that homeowners overestimate their house value by 3.1%. After controlling for homeowners' socioeconomic characteristics, I find that ex ante homeowners who rate (cash-out) refinance an existing loan to increase savings (consumption) are significantly more likely to underestimate (overestimate) their house value. Moreover, overestimators (underestimators) are more likely to increase (reduce) their spending ex post. Finally, I also find that underestimators are more likely to prepay their loans and overestimators are more likely to default on their loans.
Book Synopsis The Effect of Housing and Stock Market Wealth on Consumption in Emerging and Developed Countries by : Amina Ahec Šonje
Download or read book The Effect of Housing and Stock Market Wealth on Consumption in Emerging and Developed Countries written by Amina Ahec Šonje and published by . This book was released on 2015 with total page pages. Available in PDF, EPUB and Kindle. Book excerpt: This study examines the long- and short-run relationship between private consumption, housing wealth, stock market wealth and income. In order to asses this relationship empirically, we use pooled mean group estimators of dynamic heterogeneous panel data on a sample of 30 developed and emerging economies. The sample countries are segmented into three separate panels: a developed bank-based panel, a developed market-based panel, and an emerging bank-based panel. Empirical estimates support the existence of long- and short-run stock market wealth effects in both groups of developed countries, with the effect being particularly strong in the developed market-based countries. A moderate long-run housing wealth effect is confirmed only for the developed bank-based countries, while a very strong short-run housing wealth effect is present in the developed market-based countries. As far as the emerging countries are concerned, the evidence is somewhat inconclusive, but it does seem to suggest that both wealth effects are effective in the long run, with housing wealth being more dominant.
Book Synopsis Housing Wealth Effects by : Adam M. Guren
Download or read book Housing Wealth Effects written by Adam M. Guren and published by . This book was released on 2018 with total page 0 pages. Available in PDF, EPUB and Kindle. Book excerpt: We provide new, time-varying estimates of the housing wealth effect back to the 1980s. We exploit systematic differences in city-level exposure to regional house price cycles to instrument for house prices. Our main findings are that: 1) Large housing wealth effects are not new: we estimate substantial effects back to the mid 1980s; 2) Housing wealth effects were not particularly large in the 2000s; if anything, they were larger prior to 2000; and 3) There is no evidence of a boom-bust asymmetry. We compare these findings to the implications of a standard life-cycle model with borrowing constraints, uninsurable income risk, illiquid housing, and long-term mortgages. The model explains our empirical findings about the insensitivity of the housing wealth effects to changes in the loan-to-value (LTV) distribution, including the dramatic rise in LTVs in the Great Recession. The insensitivity arises in the model for two reasons. First, impatient low-LTV agents have a high elasticity. Second, a rightward shift in the LTV distribution increases not only the number of highly sensitive constrained agents but also the number of underwater agents whose consumption is insensitive to house prices.
Book Synopsis Wealth Effects on Consumption by : Olympia Bover
Download or read book Wealth Effects on Consumption written by Olympia Bover and published by . This book was released on 2006 with total page 29 pages. Available in PDF, EPUB and Kindle. Book excerpt:
Book Synopsis The (mythical?) Housing Wealth Effect by : Charles W. Calomiris
Download or read book The (mythical?) Housing Wealth Effect written by Charles W. Calomiris and published by . This book was released on 2009 with total page 29 pages. Available in PDF, EPUB and Kindle. Book excerpt: Models used to guide policy, as well as some empirical studies, suggest that the effect of housing wealth on consumption is large and greater than the wealth effect on consumption from stock holdings. Recent theoretical work, in contrast, argues that changes in housing wealth are offset by changes in housing consumption, meaning that unexpected shocks in housing wealth should have little effect on non-housing consumption. We reexamine the impact of housing wealth on non-housing consumption, employing the Case-Quigley-Shiller data on U.S. housing wealth that have been used in prior studies to estimate a large housing wealth effect. Existing empirical work fails to control for the fact that changes in housing wealth may be correlated with changes in expected permanent income, biasing the resulting estimates. Once we control for the endogeneity bias resulting from the correlation between housing wealth and permanent income, we find that housing wealth has a small and insignificant effect on consumption. Additional analysis of time-series results provides further support for that view.
