Jonathan McCarthy is a research officer in the Macroeconomic and Monetary Studies function of the Research and Statistics Group at the Federal Reserve Bank of New York, a post he has held since January 2007. He has been at the New York Fed since September 1992, after receiving his Ph.D. in economics from the University of Wisconsin- Madison in May 1992. He was a visiting economist at the Bank for International Settlements in Basel, Switzerland, in 1997-98.
Charles Steindel is a senior vice president in the research and market analysis group of the Federal Reserve Bank of New York. He had been a vice president in the research area since July 1995. He joined the bank in 1986 and has been an officer since 1990. He holds a B.S. degree in mathematics from Emory University and a Ph.D. in economics from Massachusetts Institute of Technology.
The current expansion has seen record-high levels of transactions in housing, extraordinary growth in the aggregate value of owner-occupied housing, and large increases in the amount of funds realized from the refinancing of mortgage debt. Many analysts thus have pointed to the strong housing market and rising home prices as a major pillar supporting recent economic growth and have expressed concern that a contraction in housing activity and values could pose a significant risk to consumer spending and real economic growth. This paper explores the channels by which the housing market may affect consumer spending and assesses the potential risk from a softening in the housing market. Our assessment is that while a housing slowdown by itself may slow consumer spending some, it is probably insufficient to precipitate a downturn without some additional shocks outside of the sector.
