Tuesday, August 02, 2011

Did the Housing Boom Boost Spending?

Short answer: yes. According to research by the Center for Retirement Research at Boston College, every 10 percent increase in housing prices during the boom boosted household spending on non-durables (which they define as food and drink, dining out, clothing and apparel, hobbies and leisure, entertainment, travel, and gasoline) by 4 percent. The research is based on an examination of 2001 through 2009 data from the Health and Retirement Study--a nationally representative longitudinal panel of householders aged 51 or older.

The researchers also found that as housing prices declined, there was no compensating decline in spending--at least through 2009. "Price declines do not have a statistically significant effect on spending," they report.

My take: Americans will go through all kinds of contortions to maintain their lifestyle. But the day of reckoning will come.

Source: Center for Retirement Research at Boston College, Did the Housing Boom Increase Household Spending?

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