MACRO: Of House and Home-Related Goods: Household Spending and Home Purchases over the Housing Cycle; Dr James Graham (University of Sydney)

Abstract:

In order to understand the strong co-movement between the housing market and aggregate spending, we study a novel home purchase-expenditure channel. First, using household-level panel data, we document significant and persistent increases in home-related spending, such as renovations, repairs, furniture, and appliances, following new home purchases. Second, we build a heterogeneous household model with housing choices, home renovations, and mismatch shocks between new houses and home-related durable goods. Model simulations show that the home purchase-expenditure channel amplifies aggregate dynamics and explains up to 45 percent of total spending variability during housing market expansions and contractions.

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