IMF Working Papers

Feeling Rich, Feeling Poor: Housing Wealth Effects and Consumption in Europe

By Serhan Cevik, Sadhna Naik

December 8, 2023

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Format: Chicago

Serhan Cevik, and Sadhna Naik. Feeling Rich, Feeling Poor: Housing Wealth Effects and Consumption in Europe, (USA: International Monetary Fund, 2023) accessed November 21, 2024

Disclaimer: IMF Working Papers describe research in progress by the author(s) and are published to elicit comments and to encourage debate. The views expressed in IMF Working Papers are those of the author(s) and do not necessarily represent the views of the IMF, its Executive Board, or IMF management.

Summary

Households across Europe are struggling with a double crisis—the worst inflation shock since the World War II and a sudden correction in house prices. There is a rich literature on how housing price cycles affect consumer spending, finding mixed results with a wide range of consumption responses to changes in housing wealth. In this paper, using quarterly data on 20 countries in Europe over the period 1980–2023, we analyze the dynamic relationship between inflation-adjusted housing wealth and consumer spending and obtain statistically significant and economically intuitive results. Household consumption responds positively and swiftly to changes in real house prices and gross disposable income as expected. Using the estimated coefficients, we can deduce that the average quarter-on-quarter decline of -1.96 percent in real house prices in the first quarter of 2023 in Europe could dampen consumer spending by about -0.51 percentage points in real terms on a cumulative basis over a horizon of eight quarters.

Subject: Disposable income, Housing, Housing prices, Income, National accounts, Prices, Private consumption

Keywords: Consumer spending, Consumer spending growth, Cost of capital, Depressing housing price, Disposable income, Europe, House price cycle, House price movement, House prices, Household consumption growth, Housing, Housing price cycle, Housing prices, Housing prices in the CEE region, Housing wealth, Housing wealth effect, Income, Price unit, Private consumption, Property price dataset, Wealth effects

Publication Details

  • Pages:

    16

  • Volume:

    ---

  • DOI:

    ---

  • Issue:

    ---

  • Series:

    Working Paper No. 2023/256

  • Stock No:

    WPIEA2023256

  • ISBN:

    9798400261367

  • ISSN:

    1018-5941

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