Analysis of Consumers’ Perceptions of Buying
Conditions for Houses
Published online: 19 September 2007
Springer Science + Business Media, LLC 2007
Abstract This paper examines the determinants of consumers’ buying attitudes for
houses from January 1984 through June 2005. Data on buying attitudes are from
responses to the Surveys of Consumer Attitudes conducted by the Survey Research
Center, University of Michigan. The determinants considered include current and
expected interest rates, wealth, expected real disposable income, expected change in
financial status and house prices. The empirical estimates show that a long-run
relationship exists between buying attitudes for houses and each of the above
variables. Each of these determinants also Granger cause buying perceptions.
Generalized impulse responses show that shocks to each of the above variables have
a predictable and permanent impact on buying attitudes. Furthermore, generalized
variance decompositions suggest that both current and expected interest rates explain
a large proportion of the variation in consumers’ perceptions towards buying houses.
Since consumers’ attitudes towards buying houses are likely to be translated into
actual purchases, this study shows that in order of importance, interest rates—both
current and future—have the maximum impact on decisions to purchase houses
followed by expectations of real disposable income.
Keywords Consumers’ buying attitudes
Generalized impulse responses and variance decompositions
The housing sector is one of the largest sectors of the US economy and an important
source of wealth building. It constitutes about 16% of GDP and almost a third of
total consumers’ expenditure. Moreover about 70% of US households are home-
owners. Changes in the housing sector are therefore expected to reverberate
throughout the economy and are likely to impact other sectors of the economy.
J Real Estate Finan Econ (2008) 37:335–350
P. Dua (*)
Department of Economics, Delhi School of Economics, University of Delhi, Delhi 110007, India
Economic Cycle Research Institute, New York, NY, USA