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The Impact of House Price Appreciation on Portfolio Composition and Savings

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Author Info
HUD – PD&R
Abstract

Recent federal policy initiatives have sought to aggressively boost homeownership in the United States. This is clear in the newly passed “American Dream Act” that provides downpayment assistance for low-income and first-time homebuyers. It is also clear in regulations calling for a significant increase in the percentage of Fannie Mae and Freddie Mac lending that must target underserved borrowers and communities. These efforts were prompted by concerns about unequal access to mortgage credit, the hope that homeownership will strengthen neighborhoods by encouraging families to invest in their communities, and the hope that homeownership will enhance the ability of individual families to accumulate wealth. An assumption that homeowners save, rather than consume wealth generated through housing capital gains is implicit. However, the Chairman of the Federal Reserve has attributed much of the strength in consumer spending during the recent recession to the propensity of homeowners to cash out and spend from their house price appreciation. This study evaluated the following two questions using data from the Survey of Consumer Finances from 1983 to 2001, and from the National Longitudinal Survey of Youth: To what extent do households save or consume in response to house price appreciation? How does house price appreciation affect household portfolios of assets and debts?

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Paper provided by HUD USER, Economic Development in its series Economic Development Publications with number 39049.

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Length: 42 pages
Date of creation: Dec 2004
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Handle: RePEc:hud:wpaper:39049

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R2 - Urban, Rural, and Regional Economics - - Household Analysis

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  1. Green, Richard K. & White, Michelle J., 1997. "Measuring the Benefits of Homeowning: Effects on Children," Journal of Urban Economics, Elsevier, vol. 41(3), pages 441-461, May. [Downloadable!] (restricted)
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  2. Engelhardt, Gary V., 2003. "Nominal loss aversion, housing equity constraints, and household mobility: evidence from the United States," Journal of Urban Economics, Elsevier, vol. 53(1), pages 171-195, January. [Downloadable!] (restricted)
  3. DiPasquale, Denise & Glaeser, Edward L., 1999. "Incentives and Social Capital: Are Homeowners Better Citizens?," Journal of Urban Economics, Elsevier, vol. 45(2), pages 354-384, March. [Downloadable!] (restricted)
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  4. Adam Szeidl & Raj Chetty, 2004. "Consumption Commitments and Asset Prices," 2004 Meeting Papers 354, Society for Economic Dynamics. [Downloadable!]
  5. Karl E. Case, John M. Quigley, Robert J. Shiller., 2001. "Comparing Wealth Effects: The Stock Market versus The Housing Market," Economics Working Papers E01-308, University of California at Berkeley. [Downloadable!]
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  6. Glenn Canner & Karen Dynan & Wayne Passmore, 2002. "Mortgage refinancing in 2001 and early 2002," Federal Reserve Bulletin, Board of Governors of the Federal Reserve System (U.S.), issue Dec, pages 469-481. [Downloadable!]
  7. Engelhardt, Gary V., 1996. "House prices and home owner saving behavior," Regional Science and Urban Economics, Elsevier, vol. 26(3-4), pages 313-336, June. [Downloadable!] (restricted)
  8. Donald R. Haurin & Toby L. Parcel & R. Jean Haurin, 2002. "Does Homeownership Affect Child Outcomes?," Real Estate Economics, American Real Estate and Urban Economics Association, vol. 30(4), pages 635-666. [Downloadable!] (restricted)
  9. Peek, Joe, 1983. "Capital Gains and Personal Saving Behavior," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 15(1), pages 1-23, February. [Downloadable!] (restricted)
  10. David Genesove & Christopher Mayer, 2001. "Loss Aversion And Seller Behavior: Evidence From The Housing Market," The Quarterly Journal of Economics, MIT Press, vol. 116(4), pages 1233-1260, November. [Downloadable!] (restricted)
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