When housing prices rise, Americans spend more. When housing prices fall, they spend less. This is the finding of a new National Bureau of Economic Research study by economists Karl E. Case, John M. Quigley, and Robert J. Shiller.
Of course, we already knew that a rise in housing values boosts spending. We could see it happening in the early 2000s. What we didn't know was that a decline in housing values reduces spending significantly. We didn't know because we had to wait for a housing crash, then measure its effect on spending. The NBER study compares housing values and household spending from 1975 through 2012, capturing the housing crash and subsequent spending cuts. Now we know.
Source: National Bureau of Economic Research, Wealth Effects Revisited: 1975-2012, NBER Working Paper 18667, ($5)
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