House price expectations and household spending— A survey-based experiment

Abstract

I conduct a survey-based experiment to study the causal effect of house price expectations on individuals’ spending decisions. In the experiment, respondents are randomly divided into two groups to receive different professional forecasts of house prices. Exploiting this information treatment as an exogenous source of variation in house price expectations, I show that a one percentage point increase in expected nationwide house price growth over the next 12 months leads to about a 0.4 percentage point increase in intended total household spending growth over the same period. I show that this effect is likely driven by an expected increase in housing wealth and that individuals consider the increase in housing wealth as relaxing their borrowing constraints.