Seminar: House Price Shocks and Household Saving

The aim of this study is to investigate what is the effect of unexpected house price shocks on the saving and consumption behavior of households. The macroeconomic literature has identified a robust relationship between house prices and consumption at the aggregate level. The microeconomic literature argues that this might be due to three possible main reasons: a wealth effect whereby households compensate changes in housing wealth by spending/saving more, a collateral effect whereby households use the main residence as a collateral for consumer loans, and a common causality effect whereby a third aggregate variable correlates with both house prices and consumption. Using data from Dutch National Bank Household Survey, I test the implications of these three possible explanations employing subjective house prices and subjective house price expectations. Preliminary results rule out a strong wealth effect, implying that it is a collateral effect and/or a third aggregate variable that explains the macroeconomic relationship between house prices and consumption.