Much has been said about the effects of wealth on consumption over the past several decades and probably much more will be said in the future. In this report we reference a simple paper on the topic and extend our own analysis to shed some light on the process, specifically during the last U.S. housing boom, when extremely easy access to credit made it possible for many households in the United States to access and use wealth accumulated through home price appreciation. 

We further segment the analysis into two distinct periods. The first period goes from 1952 to 1984; a period characterized by a relatively stable and low household debt as a percentage of disposable personal income, and we conclude that housing wealth did not contribute to U.S. households’ ability to consume. During this period, household consumption was driven fundamentally by “good-old” income growth and some drawing down of the saving rate, especially during the last years of that period. In the second period, which goes from 1985 until Q2 2013, there is a clear break from the past when U.S. households start a period, before the Great Recession, in which they bring up household debt as a percentage of disposable personal income to an all-time-high of 124 percent (100 percent represented mortgage debt and 24 percent consumer debt). During this period, we show that U.S. households’ use of wealth, but especially, of housing wealth, becomes more important in determining personal consumption expenditures, even compared to disposable personal income.

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