Since the S&P/Case-Shiller Composite 20-City Home Price Index bottomed out in 2012, personal consumption expenditures have increased by just 2.3% annually, a decrease from the 3.5% recorded during the 2003-2006 housing bubble. Bloomberg staffer Luke Kawa reports on a letter written by a team of economists that explains how the wealth effect from real estate that juices consumer spending has been cut in half since the mid-2000s.

While in the middle of 2005, households would spend an extra $3.40 if their home gained $100 in value, that number was $1.70 by the end of 2015.

"In other words, home prices in 2015 need to rise double as fast as in 2005 in order to generate the same impact on consumer spending," writes Torsten Slok, chief international economist at Deutsche Bank AG. "This weaker wealth effect is a key reason why the recovery since 2009 has been so weak."

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