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Is Housing Wealth An 'ATM'? the Relationship Between Household Wealth, Home Equity withdrawal, and Saving Rates

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  • Vladimir Klyuev
  • Paul S. Mills

Abstract

This paper examines the role increasing personal wealth and home equity withdrawal (HEW) have had in the decline in the personal saving rate in the United States. It does so by comparing the U.S. experience with those of Australia, Canada, and the United Kingdom. Mortgage market liberalization and innovation should reduce household cash flow and collateral constraints while making housing wealth more liquid as HEW becomes easier over time. Regression analysis indicates the expected negative relationship between U.S. saving and net worth, with a somewhat smaller coefficient than in previous studies. HEW is estimated to have a temporary negative impact on saving of the order of 20 cents on the dollar.

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Bibliographic Info

Paper provided by International Monetary Fund in its series IMF Working Papers with number 06/162.

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Length: 27
Date of creation: 01 Jun 2006
Date of revision:
Handle: RePEc:imf:imfwpa:06/162

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Keywords: Savings; mortgage; home equity; mortgages; disposable income; real interest rate; household net worth; mortgage debt; mortgage market; housing finance; consumption of fixed capital; mortgage-backed securities; household wealth; second mortgages; home equity loans; marginal propensity to consume; mortgage refinancing; capital consumption; consumption growth; personal disposable income; flexible mortgages; home equity loan; mortgage lenders; private consumption; household income; mortgage product; consumer price index; mortgage brokers; personal consumption; the marginal propensity to consume; second mortgage; average propensity to consume; consumption expenditure; mortgage rates; housing markets; flexible mortgage; mortgage markets; household expenditure; mortgage finance; home mortgage; secondary mortgages; income effect; mortgage products; mortgage broker; consumption deflator; substitution effect; mortgage financing; long-term mortgage; national income; mortgage originators; household net wealth; fixed rate mortgage;

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  1. Bennett, Paul & Peach, Richard & Peristiani, Stavros, 2001. "Structural Change in the Mortgage Market and the Propensity to Refinance," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 33(4), pages 955-75, November.
  2. Allen Frankel, 2006. "Prime or not so prime? An exploration of US housing finance in the new century," BIS Quarterly Review, Bank for International Settlements, March.
  3. Gali, Jordi, 1990. "Finite horizons, life-cycle savings, and time-series evidence on consumption," Journal of Monetary Economics, Elsevier, vol. 26(3), pages 433-452, December.
  4. Pietro Catte & Nathalie Girouard & Robert W.R. Price & Christophe André, 2004. "Housing Markets, Wealth and the Business Cycle," OECD Economics Department Working Papers 394, OECD Publishing.
  5. Bank for International Settlements, 2006. "Housing finance in the global financial market," CGFS Papers, Bank for International Settlements, number 26, July.
  6. John Krainer & Milton Marquis, 2003. "Mortgage refinancing," FRBSF Economic Letter, Federal Reserve Bank of San Francisco, issue oct3.
  7. Laurence Boone & Nathalie Girouard & Isabelle Wanner, 2001. "Financial Market Liberalisation, Wealth and Consumption," OECD Economics Department Working Papers 308, OECD Publishing.
  8. 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.
  9. Alan Greenspan & James Kennedy, 2005. "Estimates of home mortgage originations, repayments, and debt on one-to-four-family residences," Finance and Economics Discussion Series 2005-41, Board of Governors of the Federal Reserve System (U.S.).
  10. Margaret M. McConnell & Richard W. Peach & Alex Al-Haschimi, 2003. "After the refinancing boom: will consumers scale back their spending?," Current Issues in Economics and Finance, Federal Reserve Bank of New York, vol. 9(Dec).
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