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Federal Reserve Bank of Chicago
Housing activity, home values, and consumer spending
Jonathan McCarthy
Charles Steindel

The current expansion has seen record-high levels of transactions in housing, extraordinary growth in the aggregate value of owner-occupied housing, and large increases in the amount of funds realized from the refinancing of mortgage debt. Many analysts thus have pointed to the strong housing market and rising home prices as a major pillar supporting recent economic growth and have expressed concern that a contraction in housing activity and values could pose a significant risk to consumer spending and real economic growth. This paper explores the channels by which the housing market may affect consumer spending and assesses the potential risk from a softening in the housing market. Our assessment is that a housing slowdown by itself may slow consumer spending and GDP growth some; however, it is probably insufficient to precipitate a downturn without some additional shocks outside of the sector.

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Jonathan McCarthy & Charles Steindel, Housing activity, home values, and consumer spending, Federal Reserve Bank of Chicago, Proceedings 1012, 2006.
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Keywords: Housing - Prices ; Consumption (Economics)
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