The Housing Market and Consumer Spending

Spatial Disparities in the Impact of the 1990–92 Recession: An Analysis of Uk Counties

“…The sudden and spectacular reversal of the housing market in 1988 is likely to have had a considerable impact on demand. Carruth and Henley (1992) show that changes in aggregate consumption spending were significantly positively related to changes in house pricess during 1971-89 and argue that the sudden reversal of house prices during 1988-91 is likely to have been a primary influence on the sharp decline in consumer spending in 1990-91. Much of this decrease in consumer spending seems likely to have been induced by a negative wealth effect.…”

“…Recent empirical work by Carruth andHenley (1990, 1992) adds further Support to the view that the housing market can have profound effects on the macroeconomy through the effect of changes in housing equity on aggregate consumption spending. According to Carruth and HenW the housing market may affect consumption spending in three main ways: through housing equity withdrawal; through the complementarity between housing consumption and the consumption of household goods; and through a wealth portfolio effect.…”

“…Previous research at the macroeconomic level indicates that the surge in house prices during the late 1980s, followed by the sudden reversal (particularly in the south) during 1989-92, had a substantial impact on economic activity in the UK as a whole (Bover, Muellbauer and Murphy 1989; Carruth and Henley 1992). Large changes in house prices had a substantial impact on aggregate consumption spending during the 198Os, one interpretation of this finding being that changes in net (perceived) wealth are important in determining saving from current income.…”

House Price Shocks, Negative Equity, and Household Consumption in the United Kingdom

“…Nevertheless, Muellbauer and Murphy (1995) obtain an average elasticity of 0.045. Carruth and Henley (1990b) obtain estimates that imply an elasticity of 0.04. Miles (1993a) obtains a simulated elasticity of 0.02, but Miles (1997), using cross section data, gets higher responses but the coefficients are very unstable.…”

The Impact of Credit Constraints, Interest Rates and Housing Equity Withdrawal on the Intertemporal Pattern of Consumption—a Diagrammatic Analysis

“…Figures provided by the Bank of England suggest that actual HEW rose from being around l/loth of 1% of personal disposable income, PDI, at the beginning of the 1980s to peak at over 6% of PDI in 1988 falling back to around 3% of PDI by the end of 1990. Empirical evidence that this was important at the margin of determining consumption expenditure is provided by Carruth and Henley (1990) and Patterson (1993).…”