James Cloyne, Kilian Huber, Ethan Ilzetzki, Henrik Kleven, 31 August 2018

House prices are strongly correlated with borrowing, but little is known about which one is causing the other. The column uses UK house price data between 2005 and 2015, and also exploits unusual features of the UK mortgage market, to show that a 10% rise in house prices led to a 2% rise in the amount of equity extracted. This is mostly because higher house prices could be used as collateral.

Charles Calomiris, William Miles, Stanley Longhofer, 06 July 2009

Economists have expressed fears over the macroeconomic consequences of falling home prices dragging down consumption in the US and other nations. This column says that housing values and consumption are indeed correlated, but once one takes into account the fact that housing price changes may be acting as a proxy for future expected income, the measured housing wealth effect, if it exists at all, is much smaller than popularly believed. That finding suggests that changes in housing wealth have little effect on consumption.


CEPR Policy Research