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House Prices and Home Owner Saving Behavior

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  • Gary V. Engelhardt

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.

Suggested Citation

  • Gary V. Engelhardt, 1995. "House Prices and Home Owner Saving Behavior," NBER Working Papers 5183, National Bureau of Economic Research, Inc.
  • Handle: RePEc:nbr:nberwo:5183
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    File URL: http://www.nber.org/papers/w5183.pdf
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    References listed on IDEAS

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    1. Garcia, Rene & Lusardi, Annamaria & Ng, Serena, 1997. "Excess Sensitivity and Asymmetries in Consumption: An Empirical Investigation," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 29(2), pages 154-176, May.
    2. Case, Karl E. & Mayer, Christopher J., 1996. "Housing price dynamics within a metropolitan area," Regional Science and Urban Economics, Elsevier, vol. 26(3-4), pages 387-407, June.
    3. Thaler, Richard H, 1990. "Saving, Fungibility, and Mental Accounts," Journal of Economic Perspectives, American Economic Association, vol. 4(1), pages 193-205, Winter.
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    5. Gary V. Engelhardt & Christopher J. Mayer, 1994. "Gifts for home purchase and housing market behavior," New England Economic Review, Federal Reserve Bank of Boston, issue May, pages 47-58.
    6. 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, issue May, pages 39-50.
    7. 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.
    8. Sheiner Louise, 1995. "Housing Prices and the Savings of Renters," Journal of Urban Economics, Elsevier, vol. 38(1), pages 94-125, July.
    9. Peek, Joe, 1983. "Capital Gains and Personal Saving Behavior," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 15(1), pages 1-23, February.
    10. Kul B. Bhatia, 1987. "Real Estate Assets and Consumer Spending," The Quarterly Journal of Economics, Oxford University Press, vol. 102(2), pages 437-444.
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    12. Hilary W. Hoynes & Daniel L. McFadden, 1996. "The Impact of Demographics on Housing and Nonhousing Wealth in the United States," NBER Chapters,in: The Economic Effects of Aging in the United States and Japan, pages 153-194 National Bureau of Economic Research, Inc.
    13. Skinner, Jonathan, 1987. "A superior measure of consumption from the panel study of income dynamics," Economics Letters, Elsevier, vol. 23(2), pages 213-216.
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    Citations

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    Cited by:

    1. Mauro Mastrogiacomo, 2006. "Testing consumers' asymmetric reaction to wealth changes," CPB Discussion Paper 53, CPB Netherlands Bureau for Economic Policy Analysis.
    2. 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.
    3. Joseph Nichols, 2004. "A Life-cycle Model with Housing, Portfolio Allocation, and Mortgage Financing," Econometric Society 2004 North American Winter Meetings 205, Econometric Society.
    4. Engelhardt, Gary V. & Mayer, Christopher J., 1998. "Intergenerational Transfers, Borrowing Constraints, and Saving Behavior: Evidence from the Housing Market," Journal of Urban Economics, Elsevier, vol. 44(1), pages 135-157, July.
    5. Mauro Mastrogiacomo, 2010. "Testing Consumers' Asymmetric Perception Of Changes In Household Financial Situation," Review of Income and Wealth, International Association for Research in Income and Wealth, vol. 56(2), pages 327-350, June.
    6. Lina Walker, 2004. "Elderly Households and Housing Wealth: Do They Use It or Lose It?," Working Papers wp070, University of Michigan, Michigan Retirement Research Center.

    More about this item

    JEL classification:

    • E21 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Consumption; Saving; Wealth
    • R31 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - Real Estate Markets, Spatial Production Analysis, and Firm Location - - - Housing Supply and Markets

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