The housing bubble and retirement security

The

housing bubble and retirement security

Munnell

Alicia Haydock

Munnell, Alicia Haydock

Dept. of Finance, Carroll School of Management

Author

Soto

Mauricio

Soto, Mauricio

Author

text

working paper

Chestnut Hill, Mass. Center for Retirement Research at Boston College20082008monographic

Chestnut Hill, Mass.

Center for Retirement Research at Boston College

2008

monographic

Englisheng

English

eng

electronicapplication/pdfborn digital

electronic

application/pdf

born digital

House prices rose 60 percent between 2000 and 2007 before the housing bubble burst. The question is whether the housing boom made people better or worse prepared for retirement. Theory says that infinitely-lived households experience no increase in their real net worth when housing prices increase and would therefore have no reason to borrow against the increment in their home equity to increase their consumption. Two pieces of evidence suggest that they did tap their equity: the big increase in mortgage borrowing has accompanied the run-up in house prices, and a number of studies have reported a positive relationship between house prices and consumption. Using the 2004 Survey of Consumer Finances (SCF) this paper investigates the probability of households extracting home equity through an increase in housing-related debt, the probability that they use their housing-related borrowing for consumption, and finally the factors that determine the level of consumption spending out of their increased debt. The results show that while homeowners appear to take the present discounted value of future rents into account, many of them extracted equity and used it for consumption. A substantial proportion perhaps 30 percent of older households will be less secure in retirement because of the housing bubble.

Alicia H. Munnell and Mauricio Soto.

CRR WP2008-13

CRR WP

2008-13

http://crr.bc.edu/images/stories/Working_Papers/wp-2008-13.pdf

MChBEnglisheng

MChB

Englisheng

English

eng