The Impact of House Price Appreciation on Portfolio
Composition and Savings (December 2004, 42p)
Recent federal policy initiatives have sought to aggressively
boost homeownership in the United States. This is clear in the
newly passed “American Dream Act” that provides downpayment
assistance for low-income and first-time homebuyers. It is also
clear in regulations calling for a significant increase in the
percentage of Fannie Mae and Freddie Mac lending that must
target underserved borrowers and communities. These efforts were
prompted by concerns about unequal access to mortgage credit,
the hope that homeownership will strengthen neighborhoods by
encouraging families to invest in their communities, and the
hope that homeownership will enhance the ability of individual
families to accumulate wealth. An assumption that homeowners
save, rather than consume wealth generated through housing
capital gains is implicit. However, the Chairman of the Federal
Reserve has attributed much of the strength in consumer spending
during the recent recession to the propensity of homeowners to
cash out and spend from their house price appreciation. This
study evaluated the following two questions using data from the
Survey of Consumer Finances from 1983 to 2001, and from the
National Longitudinal Survey of Youth: To what extent do
households save or consume in response to house price
appreciation? How does house price appreciation affect household
portfolios of assets and debts?
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