How do housing wealth effects vary with age?

Abstract

This article investigates whether the housing wealth effect is constant across age. The data are drawn from the Panel Study of Income Dynamics (PSID) for the waves of 2001, 2003 and 2005. Using threshold estimation to endogenously split the sample by age group, we find three threshold age groups of 49, 55 and 65. Housing wealth has a significant and positive effect on the consumption for individuals aged 49 and 55 years, but a negative effect for individuals aged 65 years and older. If age is below 49 or between 55 and 65 years, the housing wealth effect is insignificant.

Keywords:

• threshold estimation
• wealth effect

JEL Classification:

• C23
• E21

Acknowledgements

We thank David Hillner for his excellent research assistance. Remaining errors are our own.

Notes

¹ Generally, the studies find that the households' marginal propensity to consume out of increased housing wealth ranges from 3 to 4 cents on a dollar to over 10 cents.