HOUSE PRICES AND HOME OWNER SAVING BEHAVIOR

This paper examines the empirical link between house price appreciatio n and the savings behavior of home owners during the 1980s. The analys is uses household asset and debt data for a sample of under age 65 hom e-owning households from the 1984 and 1989 waves of the PSID to constr uct changes in real household wealth as a measure of household saving behavior. Cross-time and cross-regional variation in housing market co nditions are used to identify behavioral savings effects. The empirica l analysis suggests that the estimated marginal propensity to consume out of real housing capital gains is 0.03 for the median saver househo ld. However, there is an asymmetry in the saving response to both tota l and unanticipated real housing capital gains. All the savings offset comes from households that experience real housing capital losses. Ho useholds that experience real gains do not change their saving behavio r. 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 Unit ed States.