How is housing purchase intention related to consumption? The role of market sentiment

Abstract

Recent literature has widely discussed how housing price is linked to consumption and tenure choices, while tended to ignore that consumption and tenure choices are inter-correlated. This study employs the simultaneous equation model to explore how the housing purchase intention affects the non-housing consumption, considering the role of housing market sentiment. The result shows, on average, the housing purchase intention is associated with higher non-housing consumption, and a higher sentiment magnifies this positive relationship. Housing price level and growth decrease the household’s enthusiasm of purchasing a new house, while sentiment is positively related to the housing purchase intention. Renters’ behavior is less likely be affected by sentiment. In addition, the heterogeneous analysis indicates that households face a trade-off between housing and certain kinds of commodities. This study has some significant, practical implications on optimizing households’ wealth allocation, implementing housing policy and improving the social welfare.