Economist.com
How big an influence on spending is housing wealth? Hopes for a consumer revival in countries where house prices have slumped rest, in part, on the answer. A purist view is that the value of homes has no “wealth effect” on consumption. An increase in house prices only raises the future cost of shelter. Those about to trade down or sell out receive a windfall, but first-time buyers and those hoping to buy a bigger home are worse off. The overall effect on wealth is a wash. But even if that is correct, house-price increases may still have an impact as they create housing collateral for consumers who could not otherwise borrow. A study by Atif Mian and Amir Sufi of the University of Chicago’s Booth School of Business pins down the size of this effect, using the credit records of almost 70,000 American borrowers.
