Housing demand shocks and households' balance sheets

We examine the dynamic effects of housing demand shocks on a large set of macroeconomic series and detailed household balance sheet components for different wealth groups. The results show that a positive housing demand shock translates into a large boom in economic activity and reveal notable heterogeneity among wealth groups. While households of all wealth groups make heavy use of home equity-based borrowing, we find a larger consumer spending sensitivity for poorer households. A historical decomposition suggests that housing demand shocks have largely contributed to the pronounced drop in poorer households' consumption during and after the Great Recession.