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House Prices and Home Owner Saving Behavior

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  • Gary V. Engelhardt
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    Abstract

    This paper examines the empirical link between house price appreciation and the savings behavior of home owners during the 1980s. The analysis uses household asset and debt data for a sample of under age sixty-five home owning households from the 1984 and 1989 waves of the PSID to construct changes in real household wealth as a measure of household saving behavior. Cross-time and cross-regional variation in housing market conditions are used to identify behavior savings effects. The empirical analysis suggests that the estimated marginal propensity to consume out of real housing capital gains is 0.03 for the median saver household. However, there is an asymmetry in the saving response to both total and unanticipated real housing capital gains. All of the savings offset comes from households that experience real housing capital losses. Households that experience real gains do not change their saving behavior. The existence of this asymmetry casts doubt on the power of changes in house prices to explain the time series path of saving in the U.S.

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    File URL: http://www.nber.org/papers/w5183.pdf
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    Bibliographic Info

    Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 5183.

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    Date of creation: Jul 1995
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    Publication status: published as Regional Science & Urban Economics, vol. 26, no. 3-4, pp. 313-336, June 1996
    Handle: RePEc:nbr:nberwo:5183

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    1. Case, Karl E. & Mayer, Christopher J., 1996. "Housing price dynamics within a metropolitan area," Regional Science and Urban Economics, Elsevier, Elsevier, vol. 26(3-4), pages 387-407, June.
    2. Garcia, R. & Lusardi, A. & Ng, S., 1995. "Excess Sensitivity and Asymmetries in Consumption: an Empirical Investigation," Cahiers de recherche, Universite de Montreal, Departement de sciences economiques 9511, Universite de Montreal, Departement de sciences economiques.
    3. Sheiner Louise, 1995. "Housing Prices and the Savings of Renters," Journal of Urban Economics, Elsevier, vol. 38(1), pages 94-125, July.
    4. Christopher J. Mayer, 1993. "Taxes, income distribution, and the real estate cycle: why all houses do not appreciate at the same rate," New England Economic Review, Federal Reserve Bank of Boston, Federal Reserve Bank of Boston, issue May, pages 39-50.
    5. Thaler, Richard H, 1990. "Saving, Fungibility, and Mental Accounts," Journal of Economic Perspectives, American Economic Association, American Economic Association, vol. 4(1), pages 193-205, Winter.
    6. Steven F. Venti & David A. Wise, 1985. "Moving and Housing Expenditure: Transaction Costs and Disequilibrium," NBER Working Papers 1012, National Bureau of Economic Research, Inc.
    7. Gary V. Engelhardt & Christopher J. Mayer, 1994. "Gifts for home purchase and housing market behavior," New England Economic Review, Federal Reserve Bank of Boston, Federal Reserve Bank of Boston, issue May, pages 47-58.
    8. Barry Bosworth & Gary Burtless & John Sabelhaus, 1991. "The Decline in Saving: Some Microeconomic Evidence," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 22(1), pages 183-256.
    9. Hilary Williamson Hoynes & Daniel McFadden, 1994. "The Impact of Demographics on Housing and Non-Housing Wealth in the United States," NBER Working Papers 4666, National Bureau of Economic Research, Inc.
    10. Skinner, Jonathan, 1987. "A superior measure of consumption from the panel study of income dynamics," Economics Letters, Elsevier, Elsevier, vol. 23(2), pages 213-216.
    11. Nakagami, Yasuhiro & Pereira, Alfredo M., 1991. "Housing appreciation, mortgage interest rates, and homeowner mobility," Journal of Urban Economics, Elsevier, vol. 30(3), pages 271-292, November.
    12. Bhatia, Kul B, 1987. "Real Estate Assets and Consumer Spending," The Quarterly Journal of Economics, MIT Press, MIT Press, vol. 102(2), pages 437-44, May.
    13. Peek, Joe, 1983. "Capital Gains and Personal Saving Behavior," Journal of Money, Credit and Banking, Blackwell Publishing, Blackwell Publishing, vol. 15(1), pages 1-23, February.
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    Cited by:
    1. Gary V. Engelhardt & Christopher J. Mayer, 1995. "Intergenerational transfers, borrowing constraints, and saving behavior: evidence from the housing market," Working Papers, Federal Reserve Bank of Boston 95-11, Federal Reserve Bank of Boston.
    2. Joseph Nichols, 2004. "A Life-cycle Model with Housing, Portfolio Allocation, and Mortgage Financing," Econometric Society 2004 North American Winter Meetings, Econometric Society 205, Econometric Society.
    3. Lina Walker, 2004. "Elderly Households and Housing Wealth: Do They Use It or Lose It?," Working Papers, University of Michigan, Michigan Retirement Research Center wp070, University of Michigan, Michigan Retirement Research Center.
    4. F. Thomas Juster & Joseph P. Lupton & James P. Smith & Frank Stafford, 2006. "The Decline in Household Saving and the Wealth Effect," The Review of Economics and Statistics, MIT Press, vol. 88(1), pages 20-27, February.
    5. Mauro Mastrogiacomo, 2006. "Testing consumers' asymmetric reaction to wealth changes," CPB Discussion Paper 53, CPB Netherlands Bureau for Economic Policy Analysis.

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