No Place Like Home: Older Adults and Their Housing

Objectives: This paper employs new data on the consumption and assets of older Americans to investigate recent research findings that older adults do not convert their home equity into income that can be used for current consumption, as the life-cycle hypothesis predicts. We use data over twenty years from the Consumer Expenditure Survey to examine the asset and consumption trends of older adults, buttressed with additional findings from the Survey of Consumer Finances and the American Housing Survey. Older American's homeownership rates are stable until age 80 and after 80 tend to decline slowly. The homes are increasingly mortgage-free; home equity increases with age, and few older adults take out home equity loans or reverse annuity mortgages. Housing consumption-flows increase with age; non-housing consumption-flows decline after age 60 at a rate of approximately 1.4% a year. The results suggest that most older Americans are not converting their housing assets into consumption despite the life-cycle hypothesis predictions. This is also inconsistent with international trends where homeownership rates fall substantially with age. One reason may be because older Americans may be holding onto their homes to finance long-term care. If this is the case, their economic behavior may be more consistent with the life-cycle hypothesis than previous research suggests.