Evidence on the Relationship between Housing and Consumption in the US : A State-Level Analysis

We estimate the dynamic effects of aggregate US housing market shocks on state-level retail sales and home prices from 1976 to 2008. We use a common factor VAR model to account for the dynamics of the state-level variables, and identify housing demand and supply shocks using a signs-restriction approach. We find that local spending and real house prices generally respond positively but with a lag to aggregate housing demand shocks, that these responses vary significantly across states, and that differences in the level of mortgage market development most likely explain this variation