How Do Housing Markets Affect Local Consumer Prices?: Evidence from U.S. Cities

Abstract

We examine the link between house and consumer prices in 41 U.S. cities using retail price data for various consumer goods. We find that shifts in house prices precede consumer price changes, with varying impacts depending on location and product categories. The nature of housing market shocks matters too; housing supply shocks move consumer prices temporarily through the cost-push dynamics, while housing demand shocks have enduring effects via wealth and collateral channels. Our findings imply that housing market fluctuations may have greater impacts on local cost of living and consumer welfare than their representation in the Consumer Price Index.