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Aging and Housing Equity: Another Look

  • Steven F. Venti
  • David A. Wise

Aside from Social Security and, for some, employer-provided pensions, housing equity is the principle asset of a large fraction of older Americans. Many retired persons have essentially no financial assets to support retirement consumption. We use data from the Health and Retirement Study (HRS), the Asset and Health Dynamics Among the Oldest Old (AHEAD), and the Survey of Income and Program Participation (SIPP) to understand the extent to which families use housing equity to support general consumption in retirement. The initial analysis is based on self-assessed home values reported by survey respondents. Because the self-assessments exaggerate actual home equity, much of the subsequent analysis is based on the selling price of recently sold homes, together with the reported equity in recently purchased homes. Homeowners can change home equity by either discontinuing ownership or by purchasing another home of lesser or greater value. We find that in the absence of a precipitating shock--death of a spouse or entry of a family member into a nursing home- -families are unlikely to discontinue home ownership. And even when there is a precipitating shock, discontinuing ownership is the exception rather than the rule. On average, families that move and purchase a new home tend to increase home equity. We find, however, that income-poor and house-rich families are more likely to reduce equity when they move, while house-poor and income-rich households are more likely to increase housing equity. Overall, accounting for discontinuing ownership and moving to another home, housing equity increases with age until about age 75 and then declines slightly as households grow older. The overall decline among older households (surveyed in the AHEAD) is about 1.76 percent per year, and this decline is largely accounted for by a 7.84 percent decline among households who experience a precipitating shock. Families that remain intact reduce housing equity very little, about 0.11 percent per year for two-person households and 1.15 percent per year for one- person households. We conclude that, on average, home equity is not liquidated to support general non-housing consumption needs as households age.

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Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 8608.

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Date of creation: Nov 2001
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Publication status: published as Aging and Housing Equity: Another Look , Steven F. Venti, David A. Wise. in Perspectives on the Economics of Aging , Wise. 2004
Handle: RePEc:nbr:nberwo:8608
Note: AG PE
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  1. Gustman, Alan L. & Steinmeier, Thomas L., 1999. "Effects of pensions on savings: analysis with data from the health and retirement study," Carnegie-Rochester Conference Series on Public Policy, Elsevier, vol. 50(1), pages 271-324, June.
  2. Louise Sheiner & David N. Weil, 1992. "The Housing Wealth of the Aged," NBER Working Papers 4115, National Bureau of Economic Research, Inc.
  3. Steven F. Venti & David A. Wise, 1989. "But They Don't Want to Reduce Housing Equity," NBER Working Papers 2859, National Bureau of Economic Research, Inc.
  4. Steven F. Venti & David A. Wise, 1989. "Aging, Moving, and Housing Wealth," NBER Chapters, in: The Economics of Aging, pages 9-54 National Bureau of Economic Research, Inc.
  5. Jonathan S. Skinner, 1996. "Is Housing Wealth a Sideshow?," NBER Chapters, in: Advances in the Economics of Aging, pages 241-272 National Bureau of Economic Research, Inc.
  6. Steven F. Venti & David A. Wise, 1990. "Aging and the Income Value of Housing Wealth," NBER Working Papers 3547, National Bureau of Economic Research, Inc.
  7. Eric M. Engen & William G. Gale & Cori R. Uccello, 1999. "The Adequacy of Retirement Saving," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 30(2), pages 65-188.
  8. James F. Moore & Olivia S. Mitchell, 1997. "Projected Retirement Wealth and Savings Adequacy in the Health and Retirement Study," NBER Working Papers 6240, National Bureau of Economic Research, Inc.
  9. Todd Sinai & Nicholas S. Souleles, 2005. "Owner-occupied housing as a hedge against rent risk," Working Papers 05-10, Federal Reserve Bank of Philadelphia.
  10. Jonathan Feinstein & Daniel McFadden, 1989. "The Dynamics of Housing Demand by the Elderly: Wealth, Cash Flow, and Demographic Effects," NBER Chapters, in: The Economics of Aging, pages 55-92 National Bureau of Economic Research, Inc.
  11. Christopher J. Mayer & Katerina V. Simons, 1994. "Reverse Mortgages and the Liquidity of Housing Wealth," Real Estate Economics, American Real Estate and Urban Economics Association, vol. 22(2), pages 235-255.
  12. Christopher J. Mayer & Katerina Simons, 1993. "Reverse mortgages and the liquidity of housing wealth," Working Papers 93-5, Federal Reserve Bank of Boston.
  13. Steven F. Venti & David A. Wise, 2000. "Aging and Housing Equity," NBER Working Papers 7882, National Bureau of Economic Research, Inc.
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