House Prices and Household Consumption in Korea

English Abstract: We measure impact of real estate housing prices on household consumption and investigate channels in operation, making use of panel data from Korea. Our baseline finding is that households expand their consumption by 0.194 percentage points in response to a 1 percentage point increase in the real house price index. This result is driven to a larger extent by home-owning households rather than non home-owning households, and by falling prices rather than rising prices. In an attempt to find clues as to the operation of relevant channels, we further breakdown total households into subgroups based on multi-house ownership, ages of the householders, size of the housing unit, and borrowing constraints that the household may face. In examining these subgroups of homeowners, we find evidence consistent with the operation of the wealth effect channel, but we do not find evidence supporting the operation of the collateral effect channel. Estimates for non home-owning households are broadly consistent with the precautionary saving effect channel, but we also find results that might be interpreted as there being a discouragement effect channel for a subgroup of non home-owning households