The Impact of Demographics on Housing and Nonhousing Wealth in the United States
In: The Economic Effects of Aging in the United States and Japan
Equity in housing is a major component of household wealth in the United States. Steady gains in housing prices over the last several decades have generated large potential gains in household wealth among homeowners. Mankiw and Weil (1989) and McFadden (1993b) have argued that the aging of the US population is likely to induce substantial declines in housing prices, resulting in capital losses for future elderly generations. However, if households can anticipate changes in housing prices, and if they adjust their non-housing savings accordingly, then welfare losses in retirement could be mitigated. This paper focuses on two questions: (1) Are housing prices forecastable from current information on demographics and housing prices?; and (2) How are household savings decisions affected by capital gains in housing? We use metropolitan statistical area (MSA) level data on housing prices and demographic trends during the 1980's and find mixed evidence on the forecastability of housing prices. Further, we use data on five-year savings rates from the Panel Study of Income Dynamics and find no evidence that households engage in changing their non-housing savings in response to expectations about capital gains in housing. Thus, the projected decline in housing prices could result in large welfare losses to current homeowners and large intergenerational equity differences.
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- Mankiw, N. Gregory & Weil, David N., 1989.
"The baby boom, the baby bust, and the housing market,"
Regional Science and Urban Economics,
Elsevier, vol. 19(2), pages 235-258, May.
- N. Gregory Mankiw & David N. Weil, 1988. "The Baby Boom, The Baby Bust, and the Housing Market," NBER Working Papers 2794, National Bureau of Economic Research, Inc.
- Orazio P. Attanasio & Hilary Williamson Hoynes, 2000.
"Differential Mortality and Wealth Accumulation,"
Journal of Human Resources,
University of Wisconsin Press, vol. 35(1), pages 1-29.
- O. Attanasio & H. W. Hoynes, . "Differential mortality and wealth accumulation," Institute for Research on Poverty Discussion Papers 1079-96, University of Wisconsin Institute for Research on Poverty.
- Orazio P. Attanasio & Hilary W. Hoynes, 1995. "Differential Mortality and Wealth Accumulation," NBER Working Papers 5126, National Bureau of Economic Research, Inc.
- Richard T. Curtin & Thomas Juster & James N. Morgan, 1989. "Survey Estimates of Wealth: An Assessment of Quality," NBER Chapters, in: The Measurement of Saving, Investment, and Wealth, pages 473-552 National Bureau of Economic Research, Inc.
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