Is Housing Wealth An 'ATM'? the Relationship Between Household Wealth, Home Equity withdrawal, and Saving Rates

Abstract

This Working Paper should not be reported as representing the views of the IMF.The views expressed in this Working Paper are those of the author(s) and do not necessarily represent those of the IMF or IMF policy. Working Papers describe research in progress by the author(s) and are published to elicit comments and to further debate. This paper examines the role increasing personal wealth and home equity withdrawal (HEW) have had in the decline in the personal saving rate in the United States. It does so by comparing the U.S. experience with those of Australia, Canada, and the United Kingdom. Mortgage market liberalization and innovation should reduce household cash flow and collateral constraints while making housing wealth more liquid as HEW becomes easier over time. Regression analysis indicates the expected negative relationship between U.S. saving and net worth, with a somewhat smaller coefficient than in previous studies. HEW is estimated to have a temporary negative impact on saving of the order of 20 cents on the dollar.

New Zealand: Selected Issues

“…In other words, Australian households appear to have reallocated some of the wealth created by the increase in house prices into financial assets. This is confirmed by the finding that Australia featured substantial home equity withdrawal (HEW) in recent years (Klyuev and Mills, 2006), and that two thirds of Australian HEW was used to acquire financial assets or pay off debt (RBA, 2005). In New Zealand, on the other hand, HEW was unknown until 2003, and available survey data suggest that proceeds from HEW are mostly used to finance home improvements and to purchase consumer durables (Smith, 2006).…”

Homeownership Rate and Other House Price Determinants Impacts on New House Prices in Colombia

“…This phenomenon may be due to the rigidity of resource mobility caused by home ownership. If households have a relatively high marginal propensity to invest in their housing, they will have less liquidity for other purposes (Klyuev & Mills, 2007). On the other hand, authors such as He et al (2015) suggest that, instead of removing liquidity, houses can be used as collateral to obtain more credit.…”