Making the House a Home: The Stimulative Effect of Home Purchases on Consumption and Investment

64 Pages Posted: 17 Jul 2017

See all articles by Efraim Benmelech

Efraim Benmelech

Northwestern University - Kellogg School of Management; National Bureau of Economic Research (NBER)

Adam M. Guren

Boston University - Department of Economics

Brian Melzer

Federal Reserve Bank of Chicago

Date Written: July 2017

Abstract

We introduce and quantify a new channel through which the housing market affects household spending: the home purchase channel. Using an event-study design with data from the Consumer Expenditure Survey, we show that households spend on average $3,700 more in the months before and the first year following a home purchase. This spending is concentrated in the home-related durables and home improvements sectors, which are complementary to the purchase of the house. Expenditures on nondurables and durables unrelated to the home remain unchanged or decrease modestly. We estimate that the home purchase channel played a substantial role in the Great Recession, accounting for one-third of the decline in home-related durables spending and a fifth of the decline in home maintenance and investment spending from 2005 to 2010, together totaling $14.3 billion annually.

Suggested Citation

Benmelech, Efraim and Guren, Adam M. and Melzer, Brian, Making the House a Home: The Stimulative Effect of Home Purchases on Consumption and Investment (July 2017). NBER Working Paper No. w23570. Available at SSRN: https://ssrn.com/abstract=3003668

Efraim Benmelech (Contact Author)

Northwestern University - Kellogg School of Management ( email )

Evanston, IL 60208
United States

National Bureau of Economic Research (NBER) ( email )

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

Adam M. Guren

Boston University - Department of Economics ( email )

270 Bay State Road
Boston, MA 02215
United States

HOME PAGE: http://people.bu.edu/guren/

Brian Melzer

Federal Reserve Bank of Chicago ( email )

230 South LaSalle Street
Chicago, IL 60604
United States

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