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

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