Study connects housing price trends--up not down--to consumer spending

Source: New Strategist Publications

New Strategist Publications editor Cheryl Russell has this take-away from a Boston College Center for Retirement Research study that ties home price increases to consumer spending increases. Russell writes, "every 10 percent increase in housing prices during the boom boosted household spending on non-durables (which they define as food and drink, dining out, clothing and apparel, hobbies and leisure, entertainment, travel, and gasoline) by 4%. The research is based on examination of 2001 through 2009 data from the Health and Retirement Study--a nationally representative longitudinal panel of householders aged 51 or older. The researchers also found that as housing prices declined, there was no compensating decline in spending--at least through 2009. 'Price declines do not have a statistically significant effect on spending,' they report." Hard to believe that.

Did the Housing Boom Boost Spending?

Short answer: yes. According to research by the Center for Retirement Research at Boston College, every 10 percent increase in housing prices during the boom boosted household spending on non-durables (which they define as food and drink, dining out, clothing and apparel, hobbies and leisure, entertainment, travel, and gasoline) by 4 percent. The research is based on an examination of 2001 through 2009 data from the Health and Retirement Study--a nationally representative longitudinal panel of householders aged 51 or older.

The researchers also found that as housing prices declined, there was no compensating decline in spending--at least through 2009. "Price declines do not have a statistically significant effect on spending," they report.

My take: Americans will go through all kinds of contortions to maintain their lifestyle. But the day of reckoning will come.

URL to original article: http://www.builderonline.com/builder-pulse/study-connects-housing-price-trends--up-not-down--to-consumer-spending.aspx?cid=BP:080311:JUMP

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