Housing Wealth and Consumption: Did the Linkage Increase in the 2000s?. Mark Doms Federal Reserve Bank of San Francisco Wendy Dunn Board of Governors Daniel Vine Board of Governors Household Indebtedness, House Prices and the Economy, September 19-20, 2008 Sveriges Riksbank.
Federal Reserve Bank of San Francisco
Board of Governors
Board of Governors
Household Indebtedness, House Prices and the Economy,
September 19-20, 2008
The results presented here do not necessarily reflect the views of the Federal Reserve Bank of San Francisco or the Board of Governors of the Federal Reserve System.
One way to extract equity
A. Relaxation of credit constraints on existing homeowners
Increased the share of equity that could be withdrawn
Increased LTVs on new purchases
Increased LTVs on refis
May have allowed a small fraction of households to extract very large proportions of housing equity
B. Change in the composition of households
C. Behavioral changes
C. Behavioral changes, continued
Micro datasets with good measures of consumption are difficult to come by for the U.S.
We develop 2 regional panel datasets with measure of consumption and the measures of other variables typically used in consumption models
1 individual-level dataset
We merge measures of personal income, unemployment rate, housing wealth, house prices, financial wealth, transfer income …. into both datasets
The second covers quarterly taxable sales in 28 California metropolitan statistical areas (MSAs) from 1990Q1 to 2007Q1
Time-Series Variance Across DMAs for Key Variables
Time-Series Variance Across CA MSAs for Key Variables
Estimate a wide variety of models, we’ll show two main classes with our datasets
Growth rates on growth rates (a la Case, Quigley, and Shiller; Gan; Campbell and Cocco)
On a quarterly basis, most of variance in the log change in housing wealth arrives from changes in house prices.
We examine unadjusted and adjusted changes in house prices
For what groups?
Split the sample in many ways
Measures that might be related to credit constraints
Levels (error correction model) (Davis and Palumbo, ABHL)
Measures are in logs
Stock-Watson procedure: dynamic OLS
DMA/MSA fixed effects
Survey of Income and Program Participation (SIPP)– complicated survey structure
Did a family buy a new car over the past year?
Examine only those families that did not move in consecutive years.
Control for existing car stock, income, age, …… and log change in house value.
Results not as robust as in the other datasets.
Designated Market Areas (DMAs)