Is Housing Wealth a Sideshow?

Jonathan Skinner

No 4552, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: Do housing price fluctuations play an important role in the economic security of retirees, or is housing wealth just a sideshow to the determination of consumption and saving? Using panel data on saving from the Panel Study of Income Dynamics, and aggregate time- series data, I find that shifts in housing wealth do affect consumption and saving, especially for younger households. On the other hand, few elderly households appear to be tapping into their housing windfalls to finance retirement consumption. The precautionary saving approach can explain this puzzle. If housing wealth rises, households require less insurance against future contingencies, and will respond by spending more out of (nonhousing) wealth. But not every elderly household encounters a bad outcome requiring the liquidation of household equity. Hence the median elderly family will not actively spend housing windfalls. The theoretical and empirical results therefore suggest that housing wealth is not a sideshow.

Date: 1993-11
Note: AG
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Published as D. Wise, ed., Advances in the Economics of Aging. Chicago: University of Chicago Press, 1996, pp. 241-268.
Published as Is Housing Wealth a Sideshow? , Jonathan S. Skinner. in Advances in the Economics of Aging , Wise. 1996

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