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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.

Suggested Citation

  • Vladimir Klyuev & Paul S. Mills, 2006. "Is Housing Wealth An 'ATM'? the Relationship Between Household Wealth, Home Equity withdrawal, and Saving Rates," IMF Working Papers 06/162, International Monetary Fund.
  • Handle: RePEc:imf:imfwpa:06/162
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    References listed on IDEAS

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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 955-975, November.
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    3. Alan Greenspan & James E. 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.).
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    5. Bank for International Settlements, 2006. "Housing finance in the global financial market," CGFS Papers, Bank for International Settlements, number 26.
    6. 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.
    7. Margaret M. McConnell & Richard 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).
    8. 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.
    9. John Krainer & Milton H. Marquis, 2003. "Mortgage refinancing," FRBSF Economic Letter, Federal Reserve Bank of San Francisco, issue oct3.
    10. Glenn B. Canner & Karen E. 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.
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    Keywords

    Savings; Loans; United States; Household Saving; Home Equity Withdrawal; Housing Finance; mortgage; home equity; mortgages; disposable income; real interest rate; Housing Saving;

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