Consumption Commitments and Housing Dynamics
Management Science · 2025 · Volume 71 · Issue 10
Abstract
Using a measure of local long-run growth prospects, I uncover a novel link between economic fundamentals and house prices. Whereas excess housing returns are positively associated with economic growth prospects, housing valuations are negatively associated with shocks to growth prospects. I document an explanation in metro-area consumption: housing consumption is asymmetrically exposed to economic prospects in that it expands more quickly when prospects are strong than it contracts when prospects are poor. I explain these findings through the lens of an asset pricing model that focuses on a trade-off between nonseparable committed housing and nonhousing consumption. This paper was accepted by Lukas Schmid, finance. Supplemental Material: Data files are available at https://doi.org/10.1287/mnsc.2022.01996 .
Keywords
asset pricing, consumption commitments, long-run risk, real estate
Enable JavaScript for citation tools and additional paper interactions.