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Making the House a Home: The Stimulative Effect of Home Purchases on Consumption and Investment

Author

Listed:
  • Efraim Benmelech
  • Adam Guren
  • Brian T Melzer
  • Stijn Van

Abstract

We introduce and quantify a new channel through which the housing market affects household spending: the home purchase channel. Households spend on average $8,000 more on home-related durables and home improvements in the 2 years following a home purchase. Expenditures on nondurables and durables unrelated to the home remain unchanged or decrease modestly. The home purchase channel played a substantial role in the Great Recession, accounting for one-third of the decline in spending on home-related durables and home improvements from 2005 to 2010.Authors have furnished an Internet Appendix, which is available on the Oxford University Press Web site next to the link to the final published paper online

Suggested Citation

  • Efraim Benmelech & Adam Guren & Brian T Melzer & Stijn Van, 2023. "Making the House a Home: The Stimulative Effect of Home Purchases on Consumption and Investment," The Review of Financial Studies, Society for Financial Studies, vol. 36(1), pages 122-154.
    • Handle: RePEc:oup:rfinst:v:36:y:2023:i:1:p:122-154.
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    File URL: http://hdl.handle.net/10.1093/rfs/hhac041
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    Citations

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    Cited by:

    1. Feng Deng, 2019. "The sharing economy and urban property rights," Asia-Pacific Journal of Regional Science, Springer, vol. 3(1), pages 121-136, February.
    2. Gyöngyösi, Győző & Rariga, Judit & Verner, Emil, 2021. "The anatomy of consumption in a household foreign currency debt crisis," SAFE Working Paper Series 332, Leibniz Institute for Financial Research SAFE.
    3. W. Ben Mccartney & John Orellana‐Li & Calvin Zhang, 2024. "Political Polarization Affects Households' Financial Decisions: Evidence from Home Sales," Journal of Finance, American Finance Association, vol. 79(2), pages 795-841, April.
    4. Crossley, Thomas F. & Levell, Peter & Low, Hamish, 2024. "House price rises and borrowing to invest," Journal of Economic Behavior & Organization, Elsevier, vol. 223(C), pages 86-105.
    5. Sjoerd Van Bekkum & Marc Gabarro & Rustom M. Irani & José-Luis Peydró, 2019. "Take It to the limit? The effects of household leverage caps," Economics Working Papers 1682, Department of Economics and Business, Universitat Pompeu Fabra, revised Feb 2022.
    6. Arlene Wong, 2021. "Refinancing and The Transmission of Monetary Policy to Consumption," Working Papers 2021-57, Princeton University. Economics Department..
    7. Alvaro Mezza & Daniel R. Ringo & Kamila Sommer, 2021. "Student Loans, Access to Credit and Consumer Financial Behavior," Finance and Economics Discussion Series 2021-050, Board of Governors of the Federal Reserve System (U.S.).
    8. Bhutta, Neil & Ringo, Daniel, 2021. "The effect of interest rates on home buying: Evidence from a shock to mortgage insurance premiums," Journal of Monetary Economics, Elsevier, vol. 118(C), pages 195-211.
    9. Elliot Anenberg & Daniel R. Ringo, 2019. "The Propagation of Demand Shocks Through Housing Markets," Finance and Economics Discussion Series 2019-084, Board of Governors of the Federal Reserve System (U.S.).
    10. Zekai He & Jingjing Ye & Xiuzhen Shi, 2020. "Housing wealth and household consumption in urban China," Urban Studies, Urban Studies Journal Limited, vol. 57(8), pages 1714-1732, June.
    11. Tracey, Belinda & Van Horen, Neeltje, 2021. "The consumption response to borrowing constraints in the mortgage market," Bank of England working papers 919, Bank of England.
    12. Dongjae Jung, 2020. "Consumption Dynamics and a Home Purchase," Working Papers 2020-27, Economic Research Institute, Bank of Korea.
    13. Xiaoqing Zhou, 2022. "Mortgage borrowing and the boom-bust cycle in consumption and residential investment," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 44, pages 244-268, April.
    14. Li, Cheng & Zhang, Ying, 2021. "How does housing wealth affect household consumption? Evidence from macro-data with special implications for China," China Economic Review, Elsevier, vol. 69(C).
    15. Wong, Francis & Kermani, Amir, 2022. "Racial Disparities in Housing Returns," VfS Annual Conference 2022 (Basel): Big Data in Economics 264099, Verein für Socialpolitik / German Economic Association.

    More about this item

    JEL classification:

    • D12 - Microeconomics - - Household Behavior - - - Consumer Economics: Empirical Analysis
    • E21 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Consumption; Saving; Wealth
    • E22 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Investment; Capital; Intangible Capital; Capacity
    • G50 - Financial Economics - - Household Finance - - - General
    • R21 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - Household Analysis - - - Housing Demand

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