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 two 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.