Making the House a Home: The Stimulative Effect of Home Purchases on Consumption and Investment
We introduce and quantify a new channel through which the housing market affects aggregate spending: the home purchase channel. Using an event study design with data from the Consumer Expenditures Survey, we show that households spend on average $3,700 more leading up to and in the first year following a home purchase. This spending is concentrated in home-related durables, home maintenance, and home improvement, which are complementary to the purchase of the new house. Expenditures on nondurables and durables unrelated to the home remain unchanged or decrease modestly. We estimate that the home purchase channel played a substantial role in the Great Recession, explaining a third of the decline in home-related durables spending and a fifth of the decline in home maintenance and investment from 2005 to 2010, together totaling $14.3 billion annually.