NCPA - National Center for Policy Analysis

Aging and Housing Equity

June 18, 2002

Although home equity is an important component of most families' net worth at retirement, researchers have discovered retirees generally don't use that equity to pay their living costs. Even when shocks occur -- like a spouse's death or entry into a nursing home -- large drops in home equity, indicating borrowing against equity or sale of a home, are the exception rather than the rule.

The survey data come from the Health and Retirement Study (HRS), the Asset and Health Dynamics Among the Oldest Old (AHEAD), and the Survey of Income and Program Participation (SIPP). The SIPP data cover a large number of homeowners, aged 26 to 80, over the years 1984 to 1995. These data allow groups of households to be followed over time.

  • Although two-person households are more likely to own a home than one-person households, researchers found no apparent decline in home ownership in either group through age 70.
  • The AHEAD data suggest that 97 percent of two-person homeowner households continued to own a home two to three years later, as long as the household still had two members.
  • A household member's death decreased the ownership rate to about 89 percent, while admission to a nursing home decreased it to 75 percent.
  • In the absence of any shock, 91 percent of continuing one-person homeowner households remained homeowners two to three years later -- and even after a household member was admitted to a nursing home, 40 percent of one-person households continued to own a home.

These results suggest that while retirees may use home equity as an emergency fund in catastrophic circumstances, this is the exception rather than the rule. In general, home equity is not used to finance post-retirement living.

Source: Linda Gorman, "Aging and Housing Equity," NBER Digest, March 2002; based on Steven Venti and David Wise, "Aging and Housing Equity: Another Look," NBER Working Paper No. 8608, November 2001, National Bureau of Economic Research.

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