House Price Expectations and Consumer Spending

House price expectations significantly influence households’ consumption decisions. Using experienced price growth (a weighted average of past price growth in local housing markets) as the expectation measure, I find that a one-standard-deviation increase in house price expectations leads to a 2% to 6% increase in real household spending. Results hold when using the experienced price growth of geographically distant relatives as an instrument. I further document no significant difference between the spending propensity of homeowners and renters exposed to the same level of experienced price growth, thus distinguishing the expectations channel from housing wealth and collateral channels.