Household saving and real house prices: an international perspective

This cross-country study provides empirical evidence on the influence of house prices on the aggregate consumption and saving behaviour of households. Housing wealth constitutes a significant portion of total wealth for households, suggesting that their expenditure patterns are likely to reflect housing market developments. The paper first describes developments in house prices in 15 industrialised countries over the period 1970-72 and then empirically tests the relationship between house prices, household debt and saving. The main findings are that while house price movements have played a significant role in the 1980s in determining households' saving behaviour, the magnitude and direction of their impact has varied considerably across countries. A negative effect is identified in Germany, Japan, the United Kingdom and the Untied States, and a positive one in the remaining countries. The reasons for the differing responses are to be found in variations in the characteristics of national housing market, in the redistribution of wealth within the household sector and in changes in financial markets.