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Elderly Households and Housing Wealth: Do They Use It or Lose It?

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  • Lina Walker

    (Unversity of Michigan)

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    Abstract

    Over 80 percent of households in their 50s are homeowners and housing wealth accounts for over half of total household wealth for most of these homeowners. The evidence in the literature on whether the elderly are consuming their housing wealth has been mixed. Because home sales are infrequent and a high proportion of the elderly continue to own in old age, it appears that the elderly are not consuming housing wealth. There are, however, indications that housing wealth may be a form of self-insurance and that housing wealth is consumed, albeit at very old ages. To date, however, the evidence to support that hypothesis has been weak. This paper examines whether predictors of housing sales are consistent with the insurance story by looking at the extent to which indicators of changes in economic status and access to alternate insurance explain housing sales. The paper also examines the extent to which changes in health status predict housing sales. The results of the probit appear to indicate that, by and large, housing sales in old age for single households is mostly driven by worsening health. Widowhood has a large effect on increasing the probability of selling the house and the effect is larger if the husband is the surviving spouse. There are indications that poor married homeowners are consuming housing wealth and also indications that married households are responding to Medicaid tax incentives. This evidence seems to suggest that, at least among married households, housing decisions are financially motivated; however, the evidence does not by itself validate the insurance story.

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    File URL: http://www.mrrc.isr.umich.edu/publications/Papers/pdf/wp070.pdf
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    Bibliographic Info

    Paper provided by University of Michigan, Michigan Retirement Research Center in its series Working Papers with number wp070.

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    Length: 38 pages
    Date of creation: Jan 2004
    Date of revision:
    Handle: RePEc:mrr:papers:wp070

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    1. Laurence J. Kotlikoff & Avia Spivak, 1979. "The Family as an Incomplete Annuities Market," UCLA Economics Working Papers 151, UCLA Department of Economics.
    2. James F. Moore & Olivia S. Mitchell, 1997. "Projected Retirement Wealth and Savings Adequacy in the Health and Retirement Study," NBER Working Papers 6240, National Bureau of Economic Research, Inc.
    3. Jesus Fernandez-Villaverde & Dirk Krueger, 2002. "Consumption over the Life Cycle: Facts from Consumer Expenditure Survey Data," NBER Working Papers 9382, National Bureau of Economic Research, Inc.
    4. Skinner, Jonathan, 1989. "Housing wealth and aggregate saving," Regional Science and Urban Economics, Elsevier, vol. 19(2), pages 305-324, May.
    5. Jonathan S. Feinstein & Chih-Chin Ho, 2000. "Elderly Asset Management and Health: An Empirical Analysis," NBER Working Papers 7814, National Bureau of Economic Research, Inc.
    6. Gary V. Engelhardt, 1995. "House Prices and Home Owner Saving Behavior," NBER Working Papers 5183, National Bureau of Economic Research, Inc.
    7. Jonathan S. Feinstein, 1993. "Elderly Health, Housing, and Mobility," NBER Working Papers 4572, National Bureau of Economic Research, Inc.
    8. Steven F. Venti & David A. Wise, 1987. "Aging, Moving, and Housing Wealth," NBER Working Papers 2324, National Bureau of Economic Research, Inc.
    9. Louise Sheiner & David N. Weil, 1992. "The Housing Wealth of the Aged," NBER Working Papers 4115, National Bureau of Economic Research, Inc.
    10. Poterba, James M & Venti, Steven F & Wise, David A, 1994. "Targeted Retirement Saving and the Net Worth of Elderly Americans," American Economic Review, American Economic Association, vol. 84(2), pages 180-85, May.
    11. Gustman, Alan L. & Steinmeier, Thomas L., 1999. "Effects of pensions on savings: analysis with data from the health and retirement study," Carnegie-Rochester Conference Series on Public Policy, Elsevier, vol. 50(1), pages 271-324, June.
    12. Jonathan Feinstein & Daniel McFadden, 1987. "The Dynamics of Housing Demand by the Elderly: Wealth, Cash Flow, and Demographic Effects," NBER Working Papers 2471, National Bureau of Economic Research, Inc.
    13. Levin, Laurence, 1998. "Are assets fungible?: Testing the behavioral theory of life-cycle savings," Journal of Economic Behavior & Organization, Elsevier, vol. 36(1), pages 59-83, July.
    14. Lazear, Edward P & Michael, Robert T, 1980. "Family Size and the Distribution of Real Per Capita Income," American Economic Review, American Economic Association, vol. 70(1), pages 91-107, March.
    15. Kathleen McGarry, 2000. "Testing Parental Altruism: Implications of a Dynamic Model," NBER Working Papers 7593, National Bureau of Economic Research, Inc.
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    Cited by:
    1. Svetlana Pashchenko, 2010. "Accounting for non-annuitization," 2010 Meeting Papers 563, Society for Economic Dynamics.
    2. Painter, Gary & Lee, KwanOk, 2009. "Housing tenure transitions of older households: Life cycle, demographic, and familial factors," Regional Science and Urban Economics, Elsevier, vol. 39(6), pages 749-760, November.
    3. Sun Wei & Triest Robert K. & Webb Anthony, 2008. "Optimal Retirement Asset Decumulation Strategies: The Impact of Housing Wealth," Asia-Pacific Journal of Risk and Insurance, De Gruyter, vol. 3(1), pages 1-29, September.
    4. Davidoff, Thomas, 2010. "Home equity commitment and long-term care insurance demand," Journal of Public Economics, Elsevier, vol. 94(1-2), pages 44-49, February.
    5. Robert Haveman & Karen Holden & Andrei Romanov & Barbara Wolfe, 2007. "Assessing the maintenance of savings sufficiency over the first decade of retirement," International Tax and Public Finance, Springer, vol. 14(4), pages 481-502, August.

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