Abstract

http://ssrn.com/abstract=2412263
 


 



House Price Gains and U.S. Household Spending from 2002 to 2006


Atif R. Mian


Princeton University - Department of Economics; Princeton University - Woodrow Wilson School of Public and International Affairs; NBER

Amir Sufi


University of Chicago - Booth School of Business; NBER

May 16, 2014


Abstract:     
We examine the effect of rising U.S. house prices on borrowing and spending from 2002 to 2006. There is strong heterogeneity in the marginal propensity to borrow and spend. Households in low income zip codes aggressively liquefy home equity when house prices rise, and they increase spending substantially. In contrast, for the same rise in house prices, households living in high income zip codes are unresponsive, both in their borrowing and spending behavior. The entire effect of housing wealth on spending is through borrowing, and, under certain assumptions, this spending represents 0.8% of GDP in 2004 and 1.3% of GDP in 2005 and 2006. Households that borrow and spend out of housing gains between 2002 and 2006 experience significantly lower income and spending growth after 2006.

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Date posted: March 22, 2014 ; Last revised: May 17, 2014

Suggested Citation

Mian, Atif R. and Sufi, Amir, House Price Gains and U.S. Household Spending from 2002 to 2006 (May 16, 2014). Available at SSRN: http://ssrn.com/abstract=2412263 or http://dx.doi.org/10.2139/ssrn.2412263

Contact Information

Atif R. Mian
Princeton University - Department of Economics ( email )
Princeton, NJ 08544-1021
United States
Princeton University - Woodrow Wilson School of Public and International Affairs ( email )
Princeton University
Princeton, NJ 08544-1021
United States
NBER
1050 Massachusetts Avenue
Cambridge, MA 02138
United States
Amir Sufi (Contact Author)
University of Chicago - Booth School of Business ( email )
5807 S. Woodlawn Avenue
Chicago, IL 60637
United States
NBER
1050 Massachusetts Avenue
Cambridge, MA 02138
United States
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