- A wealth effect describes the phenomenon of individuals spending more as they become wealthier. This phenomenon occurs when the stock market goes up and the value of their stock portfolio increases or when the value of their home or other assets increases.
- Estimates have shown that the wealth effect is about 3 to 7 cents for each one dollar change in the equity value of the stock market. By contrast, academic researchers have shown that each extra dollar of housing wealth has a much larger impact. Furthermore, National Association of Realtors®-funded research by the Joint Center for Housing Studies at Harvard showed a much speedier consumer spending response from a change in housing wealth compared to a change in stock market wealth[1].
- But what about when the stock market or home values decline? In a 2008 paper, Case and Quigley[2] discuss reasons to suspect that the wealth effect of a decline in housing prices is much smaller than that of an increase and may ultimately be zero.
- But new evidence from the Federal Reserve’s Survey of Consumer Finances suggests that if people do what they say they will do, the opposite could be true.
- Based on responses to a question about behavior when asset values change, we learn that more people say that they will cut back on spending when asset values decline than agree that they will spend more when asset values increase.
- Because this is a new question[3] in 2009 (previously, respondents were only asked whether they would spend more if the value of assets went up), we can’t tell if people were more or less willing to spend less if the value of assets they owned declined, so we can’t know if the crisis and recession had an changed the way people responded. Further, people may not respond in practice the way they respond to a survey question.
- Researchers will continue to delve into this question as time passes and more evidence accumulates, but this small piece of the puzzle suggests that policies that shore up home values by stabilizing home prices can be very important for the economy.
1. Full report available here.
2. Case, Karl E. and John M. Quigley 2008. How Housing Booms Unwind: Income Effects, Wealth Effects, and Feedbacks through Financial Markets. European Journal of Housing Policy, June 2008. Vol. 8, No2, 161-180.
3. When the things that I own increase (decrease) in value, I am more (less) likely to spend money.
1. AGREE STRONGLY
2. AGREE SOMEWHAT
3. NEITHER AGREE NOR DISAGREE
4. DISAGREE SOMEWHAT
5. DISAGREE STRONGLY
Each day the Research staff takes a look at recently released economic indicators, addressing what these indicators mean for REALTORS® and their clients. Today’s update highlights jobless claims.
- The median household income for unmarried couple homebuyers in 2009 was $69,700.
- Three-quarters of unmarried couple buyers were first-time home buyers.
- 79 percent of unmarried couples purchased their home through an agent.
- 81 percent of unmarried couple buyers purchased a single-family home.
- For more information detailed information and a downloadable PowerPoint presentation on home buyer profiles, go here: http://realtors.org/research/research/home_buyers_sellers_maps
- REALTOR business expenses have been nearly cut in half in the last six years. In 2004, members were typically spending $8,210 on business expenses. In 2010, business expenses have dropped to $4,270.
- The largest expense is business use of vehicle, which rose last year with rising gas prices. The typical member spent $1,680 on business use of their vehicle. Administrative expenses also rose slightly in 2010 to $720.
- All other expenses dropped from 2009 to 2010 including, affinity/referral, marketing of services, office lease/building expenses, professional development, business promotion, and technology products and services.
Each day the Research staff takes a look at recently released economic indicators, addressing what these indicators mean for REALTORS® and their clients. Today’s update highlights mortgage purchase applications and the Pending Home Sales index.
The Home Price Monitor Series reviews national home prices by examining several widely cited national measurements. It is released monthly and allows REALTORS® to gain insight into the recent performance of national prices, factors affecting that performance, and the likely direction of prices in the months ahead. The Home Price Monitor includes the same data covered in the national media that clients will expect their REALTORS® to know and be able to comment on and provides different, more complete coverage of the information all in one place. The most current data for June is below.
Each day the Research staff takes a look at recently released economic indicators, addressing what these indicators mean for REALTORS® and their clients. Today’s update highlights the Case-Shiller home price index and consumer confidence.
- Case Shiller data for April is out today. The data shows that house prices in the areas covered by the 20-city index improved by 0.7 percent for the month—the first monthly improvement since July 2010. Prices fell 4 percent for the year by this measure.
- 13 of 20 cities saw improvement in the monthly data for April. Only Washington DC saw an improvement in prices in the year according to Case Shiller. By comparison, 6 of the 9 US census divisions had home price increases in April according to FHFA data.
- Case Shiller is the last to release April data, which is actually an average of information from February, March, and April. Still, Case Shiller’s index falls right in the middle of other data series in April. Series like NAR’s median home price, released last week, show even better performance in May.
- For a fuller comparison of the information in various house price series, check out NAR’s House Price Monitor which has been updated to reflect this new information.
- The near one percent gain in a single month is quite large (translating into 8 percent gain on an annualized basis) and may just be the beginning of a true home price recovery for the country.
Each day the Research staff takes a look at recently released economic indicators, addressing what these indicators mean for REALTORS® and their clients. Today’s update highlights personal income and the savings rate.
- In real estate personal relationships and connections matter. Nineteen percent of REALTOR® member business was repeat business from past consumers and clients in 2010.
- By experience, the median changes drastically. Those with less than two years of experience typically had no repeat business, however those with 16 years of experience or more typically had 35 percent of their business from repeat clients.
- Eighteen percent of REALTOR® business was from referrals from past consumers and clients. Referrals also change based on years of experience in real estate. Those with less than two years of experience typically had no referrals, while those with more than 16 years of experience typically had 21 percent of their business from referrals.
- One-third of members had some business that originated from an open house, and the typical member with a website had three customer inquiries from that website.
- For more information on the Member Profile, go to: http://www.realtor.org/topics/member_profile
