Consumption Commitments and Housing Dynamics

Using a measure of local long-run growth prospects, I uncover a novel link between economic fundamentals and house prices. Whereas excess housing returns are positively associated with economic growth prospects, housing valuations are negatively associated with shocks to growth prospects. I document an explanation in metro-area consumption: housing consumption is asymmetrically exposed to economic prospects in that it expands more quickly when prospects are strong than it contracts when prospects are poor. I explain these findings through the lens of an asset pricing model that focuses on a trade-off between nonseparable committed housing and nonhousing consumption. This paper was accepted by Lukas Schmid, finance. Supplemental Material: Data files are available at https://doi.org/10.1287/mnsc.2022.01996 .