NCPA - National Center for Policy Analysis

Don't Forget The Wealth Effect Of Housing

March 9, 2000

While much has been made of the wealth effect stemming from soaring stock markets, Federal Reserve Chairman Alan Greenspan has called attention to housing as another big contributor to the on-going spending spree.

  • He has estimated that one-quarter of the economy's $1.3 trillion expansion in the late 1990s can be attributed to consumers spending money from all types of investments.
  • He also estimates that one-sixth of the total is contributed by rising home values.
  • That suggests that homeowners have taken $55 billion in cash out of their homes in the past four years and spent it.
  • Greenspan says that, on average, a seller realizes a capital gain of $25,000 after all home-sale expenses.

Experts note that there is a difference between capital realized from the sale of equities and the revenues from homes: the latter generally are not taxed. Moreover, 67 percent of Americans are home owners, while only 49 percent own stocks.

Source: Kathleen Madigan, "The Stock Market Isn't the Only Cash Machine," Business Week, March 13, 2000.

 

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