Working Paper

Housing, consumption, and credit constraints

Abstract: 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.

Keywords: Consumption (Economics); Housing - Prices; Consumer credit;

Bibliographic Information

Provider: Board of Governors of the Federal Reserve System (U.S.)

Part of Series: Finance and Economics Discussion Series

Publication Date: 2004

Number: 2004-63