The US housing slump and the consumer

This paper attempts to quantify the U. S. housing market slump and its likely impact on consumption. In doing so, it bypasses the traditional approach that suggests that there is no nationwide housing market but a compendium of segmented markets. The paper is not an exercise in forecasting but an illustration of a different approach to modeling the housing market. An important implication of the analysis, which is related to current developments, is that the subprime market may spill over to equities through two channels-a portfolio substitution effect and, also, by eroding the capital base of commercial and investment banks.