IDEAS home Printed from https://ideas.repec.org/a/tpr/restat/v88y2006i4p736-747.html
   My bibliography  Save this article

Using Home Maintenance and Repairs to Smooth Variable Earnings

Author

Listed:
  • Joseph Gyourko

    (The Wharton School, University of Pennsylvania)

  • Joseph Tracy

    (Federal Reserve Bank of New York)

Abstract

Recent research documents a significant increase in U.S. transitory income variance over the past 25 years. An emerging literature explores the role of durables in the household's attempt to smooth consumption over these movements in transitory income. This paper examines the degree to which homeowners adjust their home maintenance decisions in order to offset transitory income fluctuations. American Housing Survey data show that home maintenance expenditures are economically significant, amounting to nearly $2,100 per year. We find a statistically significant positive elasticity of maintenance expenditures to estimated transitory income changes. However, the results suggest that adjusting home maintenance expenditures plays a relatively minor role in the household's overall consumption smoothing strategy. In terms of actual dollars, deferred home maintenance offsets on average from 1 to 7 cents of each dollar of transitory income loss. Copyright by the President and Fellows of Harvard College and the Massachusetts Institute of Technology.

Suggested Citation

  • Joseph Gyourko & Joseph Tracy, 2006. "Using Home Maintenance and Repairs to Smooth Variable Earnings," The Review of Economics and Statistics, MIT Press, vol. 88(4), pages 736-747, November.
    • Handle: RePEc:tpr:restat:v:88:y:2006:i:4:p:736-747
    as

    Download full text from publisher

    File URL: http://www.mitpressjournals.org/doi/pdf/10.1162/rest.88.4.736
    File Function: link to full text
    Download Restriction: Access to full text is restricted to subscribers.

    As the access to this document is restricted, you may want to look for a different version below or search for a different version of it.

    Other versions of this item:

    References listed on IDEAS

    as
    1. Goetzmann, William N & Spiegel, Matthew, 1995. "Non-temporal Components of Residential Real Estate Appreciation," The Review of Economics and Statistics, MIT Press, vol. 77(1), pages 199-206, February.
    2. Dirk Kreuger & Fabrizio Perri, 2002. "Does Income Inequality Lead to Consumption Inequality? Evidence and Theory," Working Papers 02-15, New York University, Leonard N. Stern School of Business, Department of Economics.
    3. Bound, John & Krueger, Alan B, 1991. "The Extent of Measurement Error in Longitudinal Earnings Data: Do Two Wrongs Make a Right?," Journal of Labor Economics, University of Chicago Press, vol. 9(1), pages 1-24, January.
    4. Katz, Lawrence F. & Autor, David H., 1999. "Changes in the wage structure and earnings inequality," Handbook of Labor Economics,in: O. Ashenfelter & D. Card (ed.), Handbook of Labor Economics, edition 1, volume 3, chapter 26, pages 1463-1555 Elsevier.
    5. Hurst, Erik & Stafford, Frank, 2004. "Home Is Where the Equity Is: Mortgage Refinancing and Household Consumption," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 36(6), pages 985-1014, December.
    6. MaCurdy, Thomas E., 1982. "The use of time series processes to model the error structure of earnings in a longitudinal data analysis," Journal of Econometrics, Elsevier, vol. 18(1), pages 83-114, January.
    7. Joseph G. Altonji & Aloysius Siow, 1987. "Testing the Response of Consumption to Income Changes with (Noisy) Panel Data," The Quarterly Journal of Economics, Oxford University Press, vol. 102(2), pages 293-328.
    8. Reschovsky, James D, 1992. "An Empirical Investigation into Homeowner Demand for Home Upkeep and Improvement," The Journal of Real Estate Finance and Economics, Springer, vol. 5(1), pages 55-71, March.
    9. Martin Browning & Annamaria Lusardi, 1996. "Household Saving: Micro Theories and Micro Facts," Journal of Economic Literature, American Economic Association, vol. 34(4), pages 1797-1855, December.
    10. Peter Gottschalk & Robert Moffitt, 1994. "The Growth of Earnings Instability in the U.S. Labor Market," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 25(2), pages 217-272.
    11. John R. Knight & Thomas Miceli & C. F. Sirmans, 2000. "Repair Expenses, Selling Contracts, and House Prices," Journal of Real Estate Research, American Real Estate Society, vol. 20(3), pages 323-336.
    12. Topel, Robert H, 1986. "Local Labor Markets," Journal of Political Economy, University of Chicago Press, vol. 94(3), pages 111-143, June.
    13. 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 955-975, November.
    14. Susan Dynarski & Jonathan Gruber, 1997. "Can Families Smooth Variable Earnings?," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 28(1), pages 229-303.
    15. Thomas P. Boehm & Keith R. Ihlanfeldt, 1986. "The Improvement Expenditures of Urban Homeowners: An Empirical Analysis," Real Estate Economics, American Real Estate and Urban Economics Association, vol. 14(1), pages 48-60.
    16. Nelson, Forrest & Olson, Lawrence, 1978. "Specification and Estimation of a Simultaneous-Equation Model with Limited Dependent Variables," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 19(3), pages 695-709, October.
    17. Abowd, John M & Card, David, 1989. "On the Covariance Structure of Earnings and Hours Changes," Econometrica, Econometric Society, vol. 57(2), pages 411-445, March.
    18. Mendelsohn, Robert, 1977. "Empirical evidence on home improvements," Journal of Urban Economics, Elsevier, vol. 4(4), pages 459-468, October.
    19. Joseph Tracy & Henry Schneider & Sewin Chan, 1999. "Are stocks overtaking real estate in household portfolios?," Current Issues in Economics and Finance, Federal Reserve Bank of New York, vol. 5(Apr).
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Olga Gorbachev, 2011. "Did Household Consumption Become More Volatile?," American Economic Review, American Economic Association, vol. 101(5), pages 2248-2270, August.
    2. Stephen H. Shore & Todd Sinai, 2010. "Commitment, Risk, and Consumption: Do Birds of a Feather Have Bigger Nests?," The Review of Economics and Statistics, MIT Press, vol. 92(2), pages 408-424, May.
    3. Chan, Sewin & Haughwout, Andrew & Tracy, Joseph, 2015. "How Mortgage Finance Affects the Urban Landscape," Handbook of Regional and Urban Economics, Elsevier.
    4. Edward L. Glaeser & Joseph Gyourko, 2007. "Arbitrage in Housing Markets," NBER Working Papers 13704, National Bureau of Economic Research, Inc.
    5. Wenli Li & Rui Yao, 2007. "The Life-Cycle Effects of House Price Changes," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 39(6), pages 1375-1409, September.
    6. Søren Leth-Petersen, 2010. "Intertemporal Consumption and Credit Constraints: Does Total Expenditure Respond to an Exogenous Shock to Credit?," American Economic Review, American Economic Association, vol. 100(3), pages 1080-1103, June.
    7. Todd Sinai & Nicholas S. Souleles, 2005. "Owner-Occupied Housing as a Hedge Against Rent Risk," The Quarterly Journal of Economics, Oxford University Press, vol. 120(2), pages 763-789.
    8. Morris A. Davis & Robert F. Martin, 2005. "Housing, house prices, and the equity premium puzzle," Finance and Economics Discussion Series 2005-13, Board of Governors of the Federal Reserve System (U.S.).
    9. Gyourko, Joseph & Saiz, Albert, 2004. "Reinvestment in the housing stock: the role of construction costs and the supply side," Journal of Urban Economics, Elsevier, vol. 55(2), pages 238-256, March.
    10. Andrew F. Haughwout & Sarah Sutherland & Joseph Tracy, 2013. "Negative equity and housing investment," Staff Reports 636, Federal Reserve Bank of New York.
    11. Joseph Gyourko & Albert Saiz, 2003. "Urban decline and housing reinvestment: the role of construction costs and the supply side," Working Papers 03-9, Federal Reserve Bank of Philadelphia.

    More about this item

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:tpr:restat:v:88:y:2006:i:4:p:736-747. See general information about how to correct material in RePEc.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Ann Olson). General contact details of provider: https://www.mitpressjournals.org/ .

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service hosted by the Research Division of the Federal Reserve Bank of St. Louis . RePEc uses bibliographic data supplied by the respective publishers.