Abstract

We re-examine the link between changes in housing wealth, financial wealth, and consumer
spending. We extend a panel of U.S. states observed quarterly during the seventeen-year period,
1982 through 1999, to the thirty-one year period, 1978 through 2009. Using techniques reported
previously, we impute the aggregate value of owner-occupied housing, the value of financial
assets, and measures of aggregate consumption for each of the geographic units over time. We
estimate regression models in levels, first differences and in error-correction form, relating per
capita consumption to per capita income and wealth. We find a statistically significant and rather
large effect of housing wealth upon household consumption. This effect is consistently larger
than the effect of stock market wealth upon consumption. This reinforces the conclusions
reported in our previous analysis.

In contrast to our previous analysis, however, we do find – based on data which include the
recent volatility in asset markets – that the effects of declines in housing wealth in reducing
consumption are at least as large as the effects of increases in housing wealth in increasing the
course of household consumption.

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