AGING AND HOUSING EQUITY: ANOTHER LOOK
                                           by

                           Steven F. Venti and David A. Wise




                                        Revised
                                       July 2001




                Prepared for the conference on the Economics of Aging
                                   May 17-20, 2001




We thank the National Institute on Aging and the Hoover Institution for Financial
Support.
                                      ABSTRACT

Aside from Social Security and, for some, employer-provided pensions, housing equity
is the principle asset of a large fraction of older Americans. Many retired persons have
essentially no financial assets to support retirement consumption. We use data 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) to
understand the extent to which families use housing equity to support general
consumption in retirement. The analysis is based in part on self-assessed home values
reported by survey respondents. Because the self-assessments exaggerate actual
home equity, much of the analysis is based on the selling price of recently sold homes,
together with the reported equity in recently purchased homes. Homeowners can
change home equity by either discontinuing ownership or by purchasing another home
of lesser or greater value. We find that in the absence of a precipitating shock--death of
a spouse or entry of a family member into a nursing home--families are unlikely to
discontinue home ownership. And even when there is a precipitating shock,
discontinuing ownership is the exception rather than the rule. On average, families that
move and purchase a new home tend to increase home equity. We find, however, that
income-poor and house-rich families are more likely to reduce equity when they move,
while house-poor and income-rich households are more likely to increase housing
equity. Overall, accounting for discontinuing ownership and moving to another home,
housing equity increases with age until about age 75 and then declines slightly as
households grow older. The overall decline among older households (surveyed in the
AHEAD) is about 1.76 percent per year, and this decline is largely accounted for by a
7.84 percent decline among households who experience a precipitating shock. Families
that remain intact reduce housing equity very little, about 0.11 percent per year for two-
person households and 1.15 percent per year for one-person households. We conclude
that, on average, home equity is typically not liquidated to support general non-housing
consumption needs as households age.




                                         Page 1
       Except for Social Security and, for some, employer-provided pension assets,

housing equity is the most important asset of a large fraction of older Americans. In

principle, these assets might be used to support consumption after retirement. In this

paper we take another look at the change in the home equity of older families as they

age, beginning at ages just before retirement. We use data from the Health and

Retirement Study (HRS), the Asset and Health Dynamics Among the Oldest Old

(AHEAD) survey, as well as the Survey of Income and Program Participation (SIPP).

We distinguish changes in housing equity that may might be thought of as part of a

financial plan to use housing equity as a means of general support in retirement from

changes in housing equity that are precipitated by family shocks--death or severe

illness.

       This paper continues the analysis we began in Venti and Wise [2001], based on

the SIPP and on the first three waves of AHEAD. In that analysis, we found that in the

absence of changes in household structure, most elderly families are unlikely to move.1

We found that even among movers, those families that continue to own typically do not
reduce home equity. However, precipitating shocks, like the death of a spouse or entry

to a nursing home, sometimes lead to liquidation of home equity. Home equity, we

concluded, is typically not liquidated to support general non-housing consumption

needs. The present analysis is an extension of this previous work. Here we use both

the HRS and AHEAD data, as well as data from eight panels of the SIPP. Again, the


       1
         The AHEAD initially surveyed persons age 70 and over in 1993 and resurveyed
them in 1995 as part of the second wave of AHEAD and resurveyed them again in 1998
as part of the fourth wave of the HRS. For convenience we refer to these surveys as
the first three waves of AHEAD.
                                         Page 2
key question is whether housing wealth is typically used to support the general

consumption of older persons as they age, although the analysis is based on more

extensive data. The present analysis also presents a more formal accounting for the

change in home equity when ownership is discontinued and the change in home equity

from moving to another owned unit ( “up-sizing” or “down-sizing”). In addition we give

brief consideration to parallel changes in non-housing assets as persons age.

      In earlier papers--Venti and Wise [1989, 1990]–we concluded that households

“don’t want to reduce housing equity” as they age. We found that large reductions in

home equity were typically associated with the death of a spouse, retirement, or with

other precipitating shocks. These analyses were based on the Retirement History

Survey (RHS) and covered persons in the 58 to 73 age range. Merrill [1984], based on

the Retirement History Survey (RHS), found that unless there was a change in family

status there was little if any reduction in housing equity as families aged Feinstein and

McFadden [1989], based on the Panel Survey of Income Dynamics (PSID), including

households with heads over age 75, also concluded that in the absence of change in

family status housing equity was typically not reduced. Megbolugbe, Sa-Aadu, and

Shilling [1997] also used the PSID and found that the change in housing equity varied

by age. The oldest households (age 75+) were as likely to trade up as to trade down
when they moved. Sheiner and Weil (1993) found some decline in home equity at older

ages, but these declines were primarily associated with shocks to family status and

health. Hurd [1999], in a general analysis of wealth change based on the first two

waves of the AHEAD, concluded that there was a modest decline in housing wealth and

rates of home ownership for two-person households that survived the two year period

intact, but larger declines for two-person households that lost a member between the

waves. He also found that total wealth increased between the waves for all types of

households and at all ages.

                                         Page 3
       Whether the elderly perceive home equity as a source of funds for general

consumption as they grow older is an important issue for at least two reasons. A

concern of some is that older households have substantial wealth locked in illiquid

housing and would like to release it. A proposed solution to this perceived “problem” is

a reverse annuity mortgage that allows the household to draw down home equity while

remaining in the home. To date, there has been little apparent interest in reverse

mortgages. It is not clear whether the failure is due to unfavorable financial terms of

reverse mortgages or simply to a lack of demand for a product that is intended to

exhaust housing equity over the life of the occupant. Several studies, including Venti

and Wise [1991], Mayer and Simons [1994], and Merrill, Finkel, and Kutty [1994], have

shown that a significant segment of the population appears to be “income-poor and

house-rich,” and might benefit from a reverse mortgage. We concluded in our earlier

analyses, however, that the equity choices of older persons were inconsistent with

substantial interest in such products. Nonetheless, knowing whether older households

wish to withdraw assets from housing equity helps to evaluate the extent of the potential

market for reverse mortgages, and we judge it important to revisit the issue.

       A second reason to consider whether the elderly plan to, or will, use home equity

to support general consumption is to understand the adequacy of saving for retirement.
If housing equity is used just like financial assets to support consumption after

retirement, then it might also be considered as a substitute for financial wealth and

perhaps treated interchangeably with financial wealth in considering the well-being of

the elderly. On the other hand, if households do not plan to be drawn down home

equity as they age, it may be more realistic to assume that general consumption

expenditures will come largely from accumulated financial wealth, including Social

Security and other annuities. Analysts considering how well households are prepared

for retirement have treated housing equity in various ways. Moore and Mitchell [2000]

                                          Page 4
include housing wealth in the set of assets that can be used to finance retirement. The

Congressional Budget Office [1993] also includes housing wealth with other wealth. On

the other hand, Bernheim [1992] in considering “Is the Baby Boom Generation

Preparing Adequately for Retirement” excluded housing wealth in making a

determination. Engen and Gale [1999] include zero, 50 percent, and 100 percent of

housing equity. Gustman and Steinmeier [1999] conduct analyses using zero and 100

percent of home equity.

       In this paper we first consider the relationship between age and housing equity

over the life cycle, based on data from the SIPP. This analysis is drawn largely from

Venti and Wise [2001]. The results are based on cohort analysis and are presented

graphically. Next, we present more detailed cohort analysis for older households,

based on the HRS and the AHEAD data. In much of this cohort analysis, the data from

these two surveys are combined. Put in many instances the cohort data for older

households are shown separately.

       We then focus on within household changes in housing equity, giving particular

attention to the effect of precipitating shocks. We find that on average there is no

reduction in housing equity among persons who continue to own homes, even as they

age through their eighties and even into their nineties. Indeed, persons who sell one
house and buy another tend to increase housing equity, on average. Large reductions

in housing equity are, on average, typically associated only with selling and

discontinuing home ownership. Giving up ownership is most often associated with the

death of a spouse or entry into a nursing home. In these cases, home equity may be

used to pay medical expenses or indeed to support more general consumption of a

surviving spouse, although we have not attempted here to document such expenditures.

In general, however, we find that home equity is not systematically converted to liquid

assets to support non-housing consumption.

                                          Page 5
      Finally, our analysis draws attention to two limiting features of the HRS and

AHEAD data. The first feature concerns the use of imputations in analysis of panel

data. Our earlier analysis of the AHEAD data was based on preliminary releases of

AHEAD wave 2 and HRS wave 4 (the third wave of AHEAD). In the current paper we

use more recent releases of the second wave of AHEAD and the fourth wave of the

HRS that include asset imputations–including home equity--provided by the HRS staff.2

Tabulations from the new data sources are similar, to tabulations presented in Venti and

Wise [2001] that did not use these imputations. We find, however, that in many

instances the imputations appear to increase the “randomness” in the data. This is

perhaps not surprising, given that imputed values are “hot-decked,” based on

contemporaneous cross-section data. In panel applications, the imputed values should

be based on both family-specific longitudinal data, as well as cross-section data. In this

paper, all analyses using the “selling price” data (section C.5 forward) drop imputed

observations.

      A second, related, concern is the large number of inconsistent responses in the

reported data, particularly when comparing “move” and “stay” transitions to “own” and

“rent” housing tenures. For example, many households are reported to own in one

wave then rent in the next, and then return to ownership in the third wave, without

reporting a move between either the first and second waves, or between the second

and third waves. Many of these households begin and end with the same (or similar)

home equity. Most of these anomalies are apparently reporting errors. Each such error

results in two changes in housing equity that are of equal magnitude but opposite sign

and thus may have a large effect on calculated changes in home equity. In some of our

analyses we have dropped observations that reported a change in tenure but did not


      2
       The newer data also use additional information on death and nursing home entry
that has recently become available.
                                          Page 6
report a move. We also find many unrealistically large wave-to-wave swings in home

equity among households that stay in the same home. These apparent errors are

comparable in magnitude to the changes in home equity reported by movers.3
      Much of the analysis in this paper is based on recent selling prices and on the

reported equity in newly purchased homes. We believe these data are likely to be the

most reliable data on home equity. We also have given considerable attention to

evaluating the extent of bias in self-assessed home values. Thus on balance, while we

believe that more attention can be given to improving the data, we are comfortable with

our principle conclusions.



A.    COHORT DESCRIPTION

1.    SIPP Data on Home Ownership and Equity over the Life Course

      The SIPP provides housing equity (obtained from home value and mortgage

debt) data for seven years - 1984, 1985, 1987, 1988, 1991, 1993 and 1995.4 From the

random sample of cross-section data in each of these years we have created cohort

data. For example, to trace the home equity of persons who were age 26 in 1984, we


      3
       The HRS is currently using “call-back” procedures to resolve these issues.
      4
       The survey panels and wave that provide the data are as follows:

            Panel Wave Dates in Field

             1984    4       Sept-Dec 1984
             1984    7       Sept-Dec 1985
             1985    3       Sept-Dec 1985
             1985    7       Jan-Apr 1987
             1986    4       Jan-Apr 1987
             1986    7       Jan-Apr 1988
             1987    4       Feb-May 1988
             1990    4       Feb-May 1991
             1991    7       Feb-May 1993
             1992    4       Feb-May 1993
             1993    7       Feb-May 1995

                                             Page 7
begin with the average home equity of persons age 26, based on the random sample of

persons age 26 in 1984 survey. Next we obtain the average equity of persons age 27

from the 1985 survey, age 29 in the 1987 survey, and so forth. We identify cohorts by

their age in the 1984 survey. We do this for 17 cohorts defined by the age of the cohort

in the first year of the data. In fact, to obtain more precise estimates of housing equity,

the data for a cohort, like age 26, is the average of data for a three-year age interval

–25, 26, and 27. We do this for cohorts, age 26, 29, ...to age 71,74. All cohorts are

followed until age 80 in the SIPP.5
       Figure 1 shows the percent of two-person households who own a home, by

cohort. These data can be affected by differential mortality. For example, suppose that

home owners were less likely to die at any age than renters. In this case, the ownership

rate would be increased with age simply because the owners lived and the renters died.

To account for this possibility, we made a mortality correction to the data, which is

explained in the appendix. The mortality-corrected data for two person households is

shown in Figure 1. To make the figure easier to read, only selected cohorts are shown.

The key message of the figure is that home ownership does not decline with age,

through age 79. In addition, there appear to be no important cohort effects until about

age 70. That is, there are no large jumps when the data for one cohort ends and the

data for another cohort begins. At older ages, however, there do appear to be

noticeable cohort effects. Home ownership is lower for the last two cohorts. But like the

trends for the other cohorts, there is no evident decline in ownership as these cohorts

age.

       Home ownership data for one-person households are shown in Figure 2. Again

there is no apparent decline in ownership with age, though age 79. Indeed, the data

seem to show some increase in ownership at the oldest ages.

       5
           Data for households over age 80 are not used because age is top coded at 80.
                                           Page 8
      Cohort home equity data for two-person families are shown in Figure 3. These

data in 1995 dollars and are corrected for mortality. The within-cohort data show no

decline in home equity as the cohort ages. The data may even show some increase in

equity within cohorts for ages 65 to 79. There do appear to be some cohort effects in

equity, as evidenced by the jumps when the data for one cohort ends and the data for

another cohort begins.

      In estimates reported in Venti and Wise [2001] we show rather systematic cohort

effects. The estimates show that both older cohorts–those over age 70 in 1984--and

younger cohorts–those younger than 36 in 1984--have lower home equity than the

average, while the middle-aged cohorts have higher equity than the average. The

cohort effects are likely determined in large part by differences in housing price changes

over time.6

      Figure 4 shows the cohort equity data for one-person households, corrected for

mortality and inflation. As with the two-person households, there seems to be no

decline in equity through age 79.



2.    AT OLDER AGES: HRS and AHEAD

      To understand trends in home equity at older ages, we use the AHEAD as well
as the HRS. Both are panel studies. The HRS follows persons in households with

heads age 51 to 61 in 1992. Members of these households were interviewed in 1992

and again in 1994, 1996, and 1998. In 1998, the heads were age 57 to 67. Thus this

age range is included within the SIPP ages. The AHEAD study follows persons in


      6
       For example, assume that homes are bought at age 35 on average, and
consider the cohort that was age 50 in 1984 compared to the cohort that was age 38 in
1984. The older cohort bought homes in 1969 on average and would have gained from
large home price increases in the 1970s. On the other hand, the younger cohort would
have bought homes in 1981 on average and would have seen much lower increases in
home equity during the 1980s and 1990s.
                                         Page 9
households with heads age 70 and older in 1993. These households were interviewed

in 1993 and again in 1995 and in 1998 (as part of the fourth wave of the HRS.7 The

AHEAD age range overlaps the older SIPP ages. Thus both HRS and AHEAD allow

comparison with components of the longer life cycle SIPP data. Details of the survey

design are presented in Juster and Suzman [1995].

       In this analysis, we follow households in both the AHEAD and HRS files. One

complication is tracking households over time. A household may split through divorce

or separation, members may die, or a family member may enter a nursing home. For

the purposes of this analysis, we have adopted these conventions: In the first wave of

each survey households are identified as either one-person or two-person households

(institutionalized persons are excluded from the original sample). In subsequent survey

waves we classify each household--according to the change since the prior wave--into

one of the following six “states”:

       “1"    Continuing one-person household

       “2"    Continuing two-person household

       “D”    One of the original members has died

       “T”    Both of the original members have died

       “N”    One or more members has entered a nursing home

       “S”    Household composition has changed for some other reason (most often a
              split through divorce or separation or the addition of a new adult member.)

       “0"    Household refused the interview or is missing for other reasons

       The sequences observed in the HRS and AHEAD are presented in Tables 1.

These sequences are used to distinguish households included in analyses below. In

cohort analysis in the next section we restrict attention to continuing two-person or one-

person households identified as “2222" or “1111" for the HRS and “222” or “111" for the


       7
        Juster and Suzman [1995] provide details of the survey design.
                                         Page 10
AHEAD. In the following section we consider changes in housing equity and other

assets between waves. For this analysis we use each two-period sequence (creating

an “interval”), and we focus in particular on the within household relationship between

home ownership and home equity on the one hand and change in household

composition on the other hand. We consider cohort data on home ownership first.

Then we consider cohort data on home equity, as well as non-housing net assets.



a.     Home Ownership

       To obtain cohort data comparable to the SIPP cohort data, we construct cohorts

from the HRS and AHEAD data by grouping households in two-year age intervals.

These constructed cohorts are the basis for the cohort data shown below.

       The home ownership cohort data for two-person families are shown in Figure 5a,

which covers ages from 50 to 93. To make the individual cohort data easier to view,

only selected–largely non-overlapping–cohorts are shown. Overall, the within-cohort

data show an increase in home ownership through age 70. Thereafter the cohort data

suggest a small decline in ownership. Cohort data for the older AHEAD households are

shown separately in Figure 5b. A more detailed analysis of these data, presented

below, shows that for the AHEAD sample the within-cohort decline in ownership for

continuing two-person households is about 0.66 percent per year for cohorts age 70 to

78 in the initial year and 0.34 percent for cohorts age 80 or more in the initial year. A

comparison of these data with the SIPP data in Figure 1 shows that for persons age 50

to 79 the SIPP and the HRS-AHEAD data are very similar. Both data sources show

ownership rates of about 90 percent for families over age 60. The within-cohort SIPP

data, however, show no decline in ownership through age 79.

       The pattern of home ownership for continuing one-person households, shown in

Figure 6a, is quite different. The within-cohort data for one person households show a


                                          Page 11
distinct rise in ownership between ages 50 and 75 and a decline in ownership at older

ages. The cohort data for the AHEAD households is shown separately in Figure 6b.

The within-cohort decline for the continuing one-person AHEAD households is about
0.66 percent per year for cohorts age 70 to 78 in the initial year and 1.82 percent for

cohorts age 80 or more in the initial year. (Some of the decline in these cohort profiles

is apparently the result of reporting errors. The within-cohort profiles for the AHEAD

households in Figures 6a and 6b become flat when households who report a change in

ownership status, but do not report having moved, are deleted from the same, as

discussed in section C.2 below.) The HRS-AHEAD data for the 50 to 75 age group are

comparable to the SIPP data for this group.



b.     Home Equity

       Mean home equity cohort data for two-person households are shown in Figure

7a.8 These within cohort data show an increase in home equity through about age 70 or

75. The data for the AHEAD households are shown separately in Figure 7b. At older

ages, the randomness in the within cohort trends make it hard to see clear trends,

although there appears to be a within cohort decline in equity. In fact, data presented

below show that the average mean decline is about $2,100 per year, which is largely
accounted for by the reported decline the same-home equity of continuing owners.

       The home equity cohort data for one-person households are shown in Figure 8a,

and separately for the AHEAD households in Figure 8b. As with the two-person

households, there is a clear within-cohort increase in home equity through age 70 or 75.

At older ages a consistent within-cohort trend is not apparent. Data presented below

show that the average decline is about $3,000 per year, again, largely accounted for by


       8
        All dollar amounts for the SIPP and AHEAD have been converted to 1998
dollars using the CPI.
                                         Page 12
the reported decline the same-home equity of continuing owners. There appear to be

substantial differences in home equity by cohort, although the randomness in the data

make it hard to distinguish cohort effects from within-cohort changes in home equity.

      Median cohort data for two- and one-person households are shown in Figures 9

and 10 respectively. There is less randomness in the median data than in the mean

data and thus within cohort trends are easier to discern in there figures. For example,

for older two-person households the medians suggest modest within cohort decline in

home equity beginning at about age 75, but cohort effects are not apparent. On the

other hand, the median cohort data for older one-person households show little within-

cohort decline in home equity but rather substantial cohort effects. Older cohorts seem

to have successively less home equity. Below, we present quantitative estimates of the

within-cohort changes in home equity.



c.    Non-Home Equity

      In considering the equity value of housing as these cohorts aged, it is informative

to compare the value of housing with other assets. Cohort data on non-housing assets

are shown in Figures 11 through 14. Like the home equity data, mean and median

cohort data are shown for two- and one-person households. And separate figures are
shown for the older AHEAD households. As with the home equity data, the trends in

the non-home equity data for the HRS households is quite clear. But the enormous

randomness in the data make the cohort data for the AHEAD households much harder

to interpret. Nonetheless, some trends are clear form the cohort data. (Below we show

quantitative within-cohort changes in non-home assets, as well as home equity.)

      First, it is clear for the HRS households that both home equity and housing

increased with age, but the non-housing assets increased much more. For example,

from Figure 7a it can be seen that the mean home equity of continuing two-person


                                         Page 13
households increased from about $80,000 at age 50 to about $120,000 for households

in their early 70s. There seem to be no apparent cohort effects. In Figure 11a, it can be

seen that non-housing assets of the HRS households increased from about $200,000 at

age 50 to close to $400,000 at age 74, about five times as much as the increase in

home equity. Again, cohort effects are not apparent in this age range. In future

analysis we will try to determine which components of non-equity assets account for the

large increase.

       Second, for the older HRS households there are also large within-cohort

increases in non-equity assets. For the older households, however, there are also large

cohort effects, with successively older cohorts having lower non-housing assets. And,

for the older cohorts there is some within-cohort decline in home equity.

       It may be that there are in fact very large wave to wave changes in both home

equity and non-housing assets. We believe, however, that the data is likely to reflect

substantial errors. Thus further “cleaning” of the data might result in more consistent

cohort patterns. The further cleaning would have to be based on joint evaluation of all

assets over all waves of the HRS and AHEAD surveys–looking perhaps at a X x Y

matrix of data for each household. In principle, the cohort data could be

parameterized–with assets related to a flexible function of age, with cohort effects, for
example. But at this point, we have not found a parameterization f the non-equity data

that adequately “fits” the cohort patterns.



C.     FAMILY STATUS AND HOME EQUITY: HRS and AHEAD

       We now turn to the relationship between changes in home equity and changes in

family structure. Again we consider two- and one-person households separately and

provide separate estimates for the HRS and the AHEAD families. Before considering

within-cohort household transitions, cross-section summary data on household tenure


                                          Page 14
(own, or rent or other combined) are shown by age and household structure (one-

person or two-person) in Table 2. Home ownership of two-person families exceeds 90

percent between ages 54 and 74 and then declines to around 80 percent at ages 85

and older. For one-person families, home ownership increases to about 68 percent for

age 70 to 74 households and then declines to about 50 percent for households age 85

and older. The home ownership rate for one-person households peaks in the 70-74 age

range, declines modestly over the next decade, then falls sharply after age.



1.     Within-Household Transitions

       We focus on the events that precipitate changes in home ownership and the

changes in home equity that are associated with the ownership changes. Table 3 shows

ownership transitions between consecutive survey waves (an “interval”). The first two

panels of the table pertain to households that owned a home at the beginning of the

interval. The third and fourth panels pertain to households that did not own a home at

the beginning of the interval. The table entries show the percent of households who

make a transition between adjacent waves of each survey. For example, the transition

labeled “22" identifies two-person household at the beginning and at the at the

beginning of the interval (the first of the two waves) and at the end of the period (in the
subsequent wave). The HRS yields as many as three transitions (wave1 to wave 2,

wave 2 to wave 3, and wave 3 to wave 4) and each represents a two year interval. The

AHEAD yields two transitions. The first interval is two years and the second three

years. All intervals in the HRS are combined to obtain the HRS results, and all interval

in the AHEAD are combined to obtain the AHEAD results.

       Consider first the top panel of the table which pertains to the HRS households

who were homeowners at the beginning of an interval. The first column shows the

percent of households that own and the percent that rent (or have some other living


                                          Page 15
arrangement) at the end of the interval. Of continuing two persons households, 98.3

percent still owned at the end of the interval; 1.7 percent no longer owned. The

ownership of initial owners declined about 0.85 percent per year. Now consider

continuing two-person HRS households who were non-owners at the beginning of the

period shown in the third panel of the. Of these households 22.3 percent became

owners during the interval, about 11.1 percent per year. On balance the number of

homeowners increased: some initial owners became non-owners, but a larger number

of initial non-owners became owners. This net addition to the homeowner group is

shown graphically for the younger--HRS–cohorts in Figure 5a. The figure, however,

pertains to households who continued as two-person families through all four waves of

the HRS. The data for continuing two-person households in the table, however, is

based on all households that continued as two person families during any two adjacent

survey waves.

       Other rows of the first panel of Table 3 show that if a spouse dies (2D), the

ownership rate remains high, at 95.6 percent. If a spouse enters a nursing home (2N)

the ownership rate declines more, to 88.6 percent, although the sample of nursing home

entrants is quite small for the younger HRS households.. For continuing one-person

HRS households the ownership rate also remains high, at 95.2 percent. (There are only
three single-person households in which the person entered a nursing home during the

interval.)

       The percent moving between adjacent waves is shown in the next column of

Table 3. Of two-person households that own in both waves, 7.1 percent moved over

the two-year interval. For two-person households that change from own to rent-or-

other, the move rate is an unexpectedly low 65.7 percent. It is possible that ownership

is transferred from parents to children, so the parents do not move, but also no longer

own. However, this low move rate is more likely a reflection of reporting error.


                                         Page 16
Inspection of some of these cases shows households owning a house of roughly

constant value for three of the four waves. This evidence, combined with the absence

of a move (which is verified by survey-takers), suggests errors in reporting or coding for

one of the waves. Because there are a relatively small number of these households, a

few errors can have a substantial effect on the move rate.

       Similar results for the AHEAD sample are presented in the second and fourth

panels. Initial homeowners in AHEAD were also likely to remain owners unless there

was a change in family status. For example, 96.9 percent of continuing two-person

households continued to own. But if one of the members died the ownership rate

dropped to 88.8 percent. If one of the members entered a nursing home the rate

dropped to 75 percent. For continuing one-person households, 91.3 percent remain

owners. But if the single person enters a nursing home, the ownership rate drops to

39.9 percent. Thus, as with the younger HRS households, in the absence on

precipitating shock most AHEAD homeowners continue to own. But in the event of a

shock, the decline in ownership is greater for older than for younger households. In

addition, the decline is greater for one-person than for two-person households.

       The move rate for the older AHEAD households that own in both waves is quite

low, about 3.9 percent for two-person households and 4.5 percent of one-person
households. Since the interval between waves is about 2 ½ years for the AHEAD, the

annual move rates are 1.6 percent and 1.8 percent respectively.

       Overall, Table 3 suggests that homeowner households in the HRS age group are

very likely to remain owners. And even if one of the household members dies or enters

a nursing home, the rate of ownership remains high. Homeowners in the AHEAD age

group are also likely to continue to own unless there is a change in family status,

especially continuing two-person households. When a member of this older household

dies or enters a nursing home, the decline in ownership is greater than for younger


                                         Page 17
households. The greatest decline in ownership is for single-person AHEAD households

who enter a nursing home. Even among this group almost 40 percent continue to own.



2.     Change in Home Equity

       We consider changes in home equity that parallel the transitions shown in Table

3. Home equity changes are presented in two formats. The first format shows changes

for all households– initial owners and initial renters-others. It shows changes for

households who switch form owning to renting, as well as those switching from renting

to owning. And it shows the net change in home equity for both groups combined. The

second format is directed to the primary focus of our analysis, the change in home

equity for initial homeowners. In this format we give particular attention to the change

in the equity of movers who continue to own, compared to stayers, those who remain in

the same house. Although we discuss changes based on changes in self-assessed

home values here, we show below that the exaggeration of self-assessed home value

impart large bias to the implied changes in home equity. Then we consider changes

based on home selling prices compared to reported equity in newly purchased homes.

We believe these latter data are the most reliable, as discussed below.

       In addition, the mover-stayer comparison is complicated by the data
inconsistencies discussed in the previous section. Some households report a change in

tenure without moving. While such changes are possible, we believe most such cases

reflect reporting or coding errors. The information on whether a household moved since

the previous wave is likely to be accurate because the prior address is incorporated in

the survey question on moving.9 In all calculations reported below, we deleting all

       9
       For example, in wave 4 of the HRS (also wave 3 of the AHEAD)
noninstitutionalized respondents were asks “Are you still living, all of the year or part of
the year, in the same apartment/house in <previous wave address and city>?”
Respondents in nursing homes were asked “Do you still have the same
apartment/house in <previous wave address and city>?” If respondents in nursing
                                           Page 18
observations with apparent transitions involving a change in tenure without a reported

move. Following this procedure, 1.1 percent of the HRS households and 3.4 percent of

the AHEAD households are deleted.10

       Change in home equity using the first format is presented in Table 4. The family

status designations are the same as those used in Table 3. There are four tenure

designations: OO, OR, RO, and RR where “O” indicates own and “R” indicates rent or

other living arrangement. Large reductions in home equity are typically associated only

with a home sale and subsequent rental. Those who move from renting to owning, of

course, increase home equity. No matter what the change in family status, there is an

increase in the average equity of HRS households (with the exception of the few 1N

families). On the other hand, there is a decrease in the mean home equity of AHEAD

families, no matter what the change in family status. The greatest decrease occurred

when a family member entered a nursing home.        For all continuing two-person

households, the mean increase in housing equity was $5,937 in the HRS and -$4,817 in

the AHEAD. The median increase was zero for households in each of the surveys. In

general, the median changes are smaller in absolute value than the mean changes, but

the relative patterns by family status and change in tenure are similar.

       Change in home equity using the second format is shown in Table 5. The key

question here is whether continuing homeowners who move and buy another house

reduce home equity more than stayers, who can serve as the “control group” in this

comparison. If movers typically wanted to use some of the wealth accumulated in home

equity to support other non-housing consumption, the home equity of movers would be


homes answered affirmatively, they are may still be homeowners and they are not
classified as movers.
       10
        Deleting all respondents who change tenure without moving reduces the
frequency of own to rent transitions. This affects the HRS and AHEAD cohort figures
presented above. In particular, the cohort profiles for one-person AHEAD households
(Figures 6a and 6b) become flat.
                                         Page 19
reduced relative to the change in the equity of stayers. The first two panels of Table 5

show the mean change in housing equity for the HRS and AHEAD; the next two panels

show medians. Consider the upper panel of the table, which pertains to two-person

households in the HRS. The change in family status is shown on the left margin. The

ownership status (tenure) at the end of the interval is shown along the top margin. A

household can continue to own or become a renter (or have some other living

arrangement) at the end of the interval. The change in home equity is shown for

continuing owners, for renters-others, and for both groups combined (all). The initial

home value for each group is shown in the right column of the table. The mean home

equity of continuing two-person households increased by $5,855, on average. For

those who remained home owners, equity increased by $6,569. Initial homeowners

whose transition was to the rent-other group reduced home equity by $54,155 on

average. The average initial home value of continuing two-person households was

$102,310. Thus home equity of the home sellers was only about half of the average

equity of all continuing two-person households.

      Some of those who continued to own stayed in the same house, others moved

and bought a new house. The equity of those who stayed increased by $6,686. The

equity of those who moved and bought a new house also increased, by $5,074. In
somewhat more formal estimation below we use the change in the equity of the stayers

as a measure of the increase the movers would have experienced had they not moved.

In this case the decrease for movers was $1,612, about 1.7 percent of the initial home

equity of this group. Thus these movers who bought a new home are not typically taking

substantial home equity out of housing to support other consumption. By this measure,

the greatest decline in home equity occurred in mover households in which a member

died, although the sample sizes are small and the means are not precisely measured.

For example, the home equity of the small number of two-person households who move


                                         Page 20
but continue to own when one member dies declines by $21,935.

       The average equity of continuing one-person HRS households declined by $697,

a very small fraction of the $95,555 average initial home equity. Continuing one-person

households who moved but continued to own reduced home equity by $3,739, and the

stayers increased equity by $935. Using the stayers as a control, the movers reduced

equity by 4.8 percent of the initial home equity of this group.

       In summary: the average home equity of two-person HRS households increased

over this period. This was true for continuing two-person households as well as those in

which a member died or in which a member entered a nursing home. The equity of

one-person households declined only slightly. Continuing owners who moved typically

reduced home equity only marginally, when compared to stayers.. The only substantial

reduction in the home equity of continuing owners was for households in which one

member died.

       For the older AHEAD households, changes in home equity also are typically

associated with precipitating shocks. But for the older households the shocks are more

frequent. Consider continuing two-person households first. The equity of continuing

stayer owners (who do not move) declined by $4,103 and can serve as a base of

comparison for other groups. This reduction, if taken at face value, apparently reflects a
fall in the value of the homes of the older households as they continue to live in the

homes, but not direct withdrawal of housing equity to support other consumption. This

decline is only slightly less than the average reduction for all continuing two-person

households, $5,367. Thus on average we conclude that little housing equity is taken

from housing to support other consumption.

       Continuing homeowners who move reduce home equity by $15,877, which is

$11,322 more than the reduction in home equity of the stayers. We take this to

represent funds taken from housing and that might be used to support other non-


                                          Page 21
housing consumption. It represents, however, only about 10.5 percent of initial home

equity for these households, and less than 4 percent of their initial non-housing wealth.

Remember that the typical older household will only move once from one home to

another. So if the reduction in housing equity can only be a one-time addition to funds

available for other consumption. Below we show that even this small reduction is

probably exaggerated and that in fact the average change is likely positive (an increase

in housing equity).

       For continuing owners in two-person households in which a member dies or

enters a nursing home, the reduction in the home equity of the movers is $14,655

greater than the reduction for the stayers. The reduction in the home equity of

continuing one-person households is also small. In particular movers who continue to

own reduce home equity by a small fraction of initial home equity.

       In summary: even among the older AHEAD households the reduction in home

equity of continuing owners is small relative to initial home equity, even among those

who move to a different house. Large reductions in home equity are typically observed

only for home owners who move and discontinue home ownership. The probability of

such a move is larger in cases of precipitating shocks. But as seen in Tables 3 and 4,

even in the event of shocks to family status, most households continue to own and thus
do not withdraw equity from housing to support other needs. For all HRS groups, the

initial home equity of the seller (rent-other) group was much lower than the equity of the

continuing owners. For the older AHEAD households the initial home equity of sellers is

also less than the initial home equity of continuing owners, although the difference is

much smaller than for the HRS households.

       Median changes in home equity are shown in bottom half of Table 5. The pattern

of change is essentially the same as the pattern for mean changes. The changes,

however, are typically smaller than the mean changes, in particular for the older AHEAD


                                         Page 22
households. For example, for continuing two-person households in the HRS the median

increase in home equity is $1,474. The increase for continuing owner-movers is only

$2,105 greater than for stayers. For continuing one-person families the median

increase is $222. And the reduction for continuing owner-movers is only $1,028 greater

than for stayers. Again, the conclusion is that for the most part housing equity is

substantially reduced only after a precipitating shock, and even in these instances,

withdrawal from home ownership is the exception and not the rule.

3.     Respondent Estimates of Home Values versus Sales Prices

       Before turning to some simple estimation, we emphasize that respondent

assessment of home equity likely overestimates home value by a substantial margin.

Thus reliance on reported home values yields exaggerated reductions in housing equity

when homeowners move. Substantial evidence shows that homeowners overestimate

the value of their homes. Kiel and Zabel [1999]) surveyed the literature and concluded

that self-reported home values exceed actual sale prices or appraisal values by -2 to 16

percent. Their own analysis showed that homeowners on average overvalue their

home by 8 percent, and that owners with long tenure overvalue their houses even more.

In other words, when a family moves the realized sale price is typically less than the

family’s prior estimate of the home value. This creates a bias in our estimate of the
change in housing equity among movers. The pre-move estimate is inflated. The post-

move price is presumably “accurate” because the purchase transaction was recently

completed.

       The estimates in Tables 4 and 5 on the change in housing equity between waves

are based on HRS and AHEAD respondent self-assessment of home values and are

affected by such overvaluation. The tendency to overvalue homes confounds mover-

stayer comparisons. Recent movers are likely to know the market value of their homes.

Stayers, on the other hand, are likely to overvalue their houses. As a result, the change


                                         Page 23
in home equity is more likely show a larger price decrease for movers than for stayers.

Thus in the previous tables movers, relative to stayers, appear to be taking more equity

out of their homes than is actually the case.

       Information obtained in both the HRS and the AHEAD allows us to gauge the

extent of this bias. For households that have recently moved, the surveys inquired

about the sale price of the house. The sale price can be compared to the reported

value of the house in the previous wave. The survey also asks for the month and year

of the sale; the month and year of the self-assessed value is the interview date. We

index the pre-move assessed value of movers and the post-move price of movers to

obtain measures in 1998 dollars.11 From these values we obtain estimates of the

overvaluation bias.

       Mean and median differences between assessed values and sales prices are

shown in the Table 6. The results suggest that both the HRS and the AHEAD

respondents overestimated their home values by 15 to 20 percent, based on a

comparison of mean values. Based on medians, home values are overestimated by 6

to 7 percent. The mean dollar differences are $20,000 to $30,000, and median dollar

differences are $6,000 to $8,000. This suggests that our calculated reductions in the

home equity of continuing owner-movers may be due entirely to valuation bias. For
example the mean reduction of $15,887 (or $11,322 using the stayers as a control) in

the home equity of two-person AHEAD families who move and continue to own would

be more than accounted for by such bias.



4.     More Formal Estimates of Change in Home Equity

       11
        Some movers are missing data for the sale price. The HRS and AHEAD
provide no imputations for missing values of the sale price. A bracketing technique is
used to obtain ranges for persons unable to provide a sale price, but we have made no
attempt here to convert the bracketed amounts to values. The analysis is restricted to
observations that specify a sale price.
                                         Page 24
       Here we consider more formally the change in home equity of movers and

stayers. As mentioned above, one way to think about this is to treat movers as the

treatment group and stayers as the “control” group. The home equity of stayers and

movers at the beginning and at the end of the interval can be represented by:

                                        Beginning              End
                   Stayers                   "                "+t
                   Movers                    "              "+t+m

In this case, a difference-in-difference estimate yields m, the “treatment” effect. We can

estimate this for all households combined, or for any subgroup, by

(1)    ∆E = t + mM
where t is a constant term--and represents a time (inflation) effect--and m is the

additional effect for movers, with M a dummy variable identifying movers.

       Estimates of this equation, by change in household status, are shown in Table 7.

This table presents estimates for households who owned at both the beginning and at

the end of the interval. Data are presented by the subsequent–at the end of the

interval–status of the initial homeowners. OLS estimates are shown in the left portion of

the table. Median regression estimates are shown in the right portion of the table. The

median regression estimates should be less affected than the OLS estimates by

reporting errors or other outliers in the data.

       The key mover effect estimate, m, measures the difference between the change

in the equity of stayers and the change for movers. The OLS estimates show negative

mover effects in each comparison, but only the mover effects for the HRS 21 and

AHEAD 11 groups are significantly different from zero at the 5 percent significance

level. And, with the possible exception of the estimated mover effect for the 2 to 1 HRS

households, the estimated effect is much lower than the bias suggested in Table 6. For


                                           Page 25
example, the estimated mover effect for continuing two-person households is -$1,612.

Referring back to Table 6, however, we see that the bias estimate for HRS households

is between $20,000 and $33,000. Thus, since most families are continuing two person

families, a reasonable judgment from these data is that the equity of the continuing two-

person households in fact increased by about $25,000. Coincidentally, this increase

matches the estimated increased for such households based on selling prices, which is

discussed below. For each of the other groups, with the exception of the 2 to 1 HRS

families, the estimated mover effect is much less than the bias estimates shown in

Table 6, suggesting rather large increases in home equity.

       For the HRS households, the median regression mover effect estimates are also

small and typically not significantly different from zero. And, the estimates are less then

the median bias estimates Table 6. Thus, based on the estimated mover effects in

conjunction with the bias estimates, we conclude that home equity likely increases

substantially when families move and buy another home.

       The median estimates for the AHEAD households are larger than the median

HRS estimates and are more precisely measured. For the 21 and 2N groups, the

estimates are greater than the bias estimates in Table 6, in particular for the 2N group.

Thus these data suggest that for households in which a member dies, and for

households in which a member enters a nursing home, home equity is reduced when

these households move and buy again. The analysis below based on selling prices,

however, suggests an increase in the median home equity of these groups as well.



5.     Estimates Based on Selling Price

       Each home owner re-interviewed in the HRS and AHEAD is asked whether the

home was sold since the previous interview. For many of these households, the selling




                                          Page 26
price is reported.12 In this section, we estimate the change in the home equity of

families who sell and buy another home, and the change in equity of those who sell and

then choose another tenure. Table 8 shows summary data on home equity for adjacent

waves of HRS and AHEAD. The first column shows reported home equity from the first

of the two waves. The second column shows the reported selling price (obtained from

the second wave interview) minus the mortgage reported in the initial wave. The sale

occurred sometime between the two waves, but the mortgage pertains to the data of the

last interview prior to the sale. The third column shows home equity reported in the

second of the two waves. For households who purchased another home (the first and

third panels of the table), this is the equity in the newly purchase home. For households

that did not purchase another home (the second and fourth panels), this column is zero.

       Like the data in Table 6 on reported home values versus selling prices, these

data show that households who sell and buy another home substantially overestimate

their pre-sale housing equity. For those who sell and do not purchase another home,

the over-estimation is not so apparent. For several of these groups the reported equity

seems to underestimate realized equity, based on selling price minus the mortgage. We

believe that the reported selling price is likely to be close to the actual selling price,

unlike the pre-sale assessment of home equity. The last column shows reported home

equity at the end of the interval. In principle, home equity right after a purchase should

also be accurately reported. For each of the intervals, the reported new home equity at

the end of the period is substantially greater than gain in home equity from the sale of

the prior home, suggesting that equity in the new home is greater than equity in the prior


       12
        There is more missing sale price data than home equity data, used in earlier
sections of the paper. Home equity (home value and mortgage balance) is obtained
from the Housing module. Information on the sale price is obtained from a module on
Capital Gains that has more incomplete responses. There are no imputations for
missing or incomplete (bracketed) sale price data. Partly for this reason, we do not use
the weights when analyzing the sale price data.
                                            Page 27
home.

        Based on the same data, Table 9 shows the estimated change in home equity for

households that have sold a home and purchased another, by change in family status.

These estimates are obtained from simple OLS and median regression estimates of the

form

(3)            ∆E = m + ε

where )E is equity in the new home at the end of the period minus equity from the sale

of the prior home. Here, m is the estimated increase in home equity. This specification

is estimated for several years separately and for several family status change groups.

For all but two groups, there is a substantial increase in home equity. Many of the

estimates are for small groups, however, and are not significantly different form zero.

        We now consider whether the change in home equity depends on the

relationship between income and housing wealth. It might be expected that persons

with relatively low income and relatively high housing equity would be more likely to

withdraw housing equity. And those with low equity and high income would be more

likely to add to housing equity. We begin with estimates of the probability of moving and

buying another home, and the probability of moving and discontinuing home ownership,

thus withdrawing all housing equity. These outcomes will depend, in particular, on the

level of home equity and the level of income in the initial period. Then we show

estimates of the relationship between the change in equity, given a move, on the one

hand, and initial income and home equity levels on the other hand.

        Households that own in the initial period can either stay in the same house, move

to another house, or discontinue home ownership by moving to a rental apartment or

some other arrangement. The probabilities of the latter two transitions may be specified

as:


                                         Page 28
          Pr[OmO] = c( 21 or 2 N or 1N ) + a11 + b22 + αY + βE + γY ⋅ E + ε
(4)

            Pr[OR] = c( 21 or 2 N or 1N ) + a11 + b22 + αY + βE + γY ⋅ E + ε

where OmO identifies families who sell a home, then move and buy another home (own

to move to own) and OR identifies families who discontinue ownership (own to rent or

other). The parameter “a” is the effect of a continuing one persons household and “b”

the effect of a continuing two-person household. (The estimated parameters are of

course not constrained to be the same for the OmO and OR groups.) The omitted

categories, captured in the constant tern c(21, 2N, and 1N), are the 21, 2N, and 1N

households. Initial period income is denoted by Y and initial home equity is denoted by

E. . Here, ( indicates whether the effect of Y depends on E (or, equivalently, whether

the effect of E depends on Y).

      Given the decision to move to another home or to discontinue ownership, we

then estimate the conditional change in home equity for the two groups, given that a

move occurs. The change in equity equations are in the same format, given by


       ∆E (OmO) = c( 21 or 2 N or 1N ) + a11 + b22 + αY + βE + γY ⋅ E + ε


(5)      ∆E (OR) = c( 21 or 2 N or 1N ) + a11 + b22 + αY + βE + γY ⋅ E + ε

Given the estimated probabilities and conditional changes in housing equity, we can

simulate the expected change in equity for homeowners as




                                        Page 29
              ∆E = ∆E (OmO) + ∆E (OR) =


                    Pr[OmO]∗ E ( ∆E| OmO ) +
(6)

                    Pr[OR]∗ E ( ∆E| OR)


where the expected change in decomposed into it’s component parts. We present

below the simulation for selected quantiles on income and home equity.

       Estimates of the probability of a move are shown in Table 10. Estimates for HRS

households are shown on the first page of the table, estimates for AHEAD households

on the second page. Parameter estimates are shown at the top of each page. The

lower part of each page shows simulated mover probabilities at selected income and

equity quantiles. The simulations show that initial income and home equity have little

effect on the probabilities of moving, either to another home or to some other

arrangement, although income has a statistically significant positive effect on the

probability of moving and buying again in both the HRS and the AHEAD samples. Both

income and home equity are statistically significant and positively related to the

probability of discontinuing ownership for HRS households. But neither is statistically

significant in the estimates for AHEAD households. In most of the simulations the

difference in probabilities between “house-poor and income-rich” households and

“house-rich and income-poor” households is only a few percentage points.

       Estimates of the change in home equity between the survey waves for families

who move and buy anther home are shown in Table 11. These estimates are based on

the sample of respondents that report a sale price for the former home and report both

the home value and mortgage debt for their current home.13 Both OLS and median


       13
       Both the sale price of the old home and the value of and mortgage on the new
home are reported in the same wave. The survey does not inquire about the mortgage
                                          Page 30
regression estimates are shown. The top half of the table shows results for HRS

households and the bottom half for AHEAD households. In none of the estimates is

there a statistically significant difference in the change for the 11 or for the 22 groups

compared to the 21-2N-1N groups combined. However, there are substantial and

significant effects for initial income and home equity. The greater the level of initial

home equity (based on selling price minus the mortgage), the smaller the increase in

equity when the family moves. And the larger initial income, the greater the increase in

home equity for households that move. None of the equity-income interaction terms is

significantly different from zero. The table also shows simulations of the change in

home equity at the 20th, the 50th, and the 80th quantiles of equity and income.

       Evaluated at the median (50th quantile) of income and home equity, the simulated

change in equity is positive for all family status groups, with the exception of the

simulation for the 11 group based on median regression estimates. For all family status

groups the greatest simulated reduction in home equity is at the 80th equity quartile and

20th income quantile. The greatest simulated increase in home equity at the 80th income

quartile and the 20th equity quantile. Thus relatively house-rich and income-poor

families reduce equity and relative house-poor and income-rich households add to

home equity when they move and buy another home. For example, based on the OLS
estimates for the 22 HRS households, at the high-equity-low-income quantiles home

equity is reduced by -$15,422; at the low-equity-high-income quantiles home equity is

increased by +$54,778. The pattern of the simulated changes based on the median

regression estimates is similar to the pattern based on OLS estimates.

       The change (decrease) in the home equity of the families who discontinue home

ownership is shown in Table 12. In this case, the decline in equity is simply the sale



obligation discharged on the old home. To obtain home equity for the old home we use
the mortgage reported in the prior wave.
                                           Page 31
price minus the mortgage. Thus we cannot use the initial home equity to predict the

change in equity, as in Table 11 for those who sell and buy again. Thus estimates of

the reduction in equity are based on income only. Essentially the estimates tell us how

home equity is related to income. For this selected group of households who sell and

do not buy another home, home equity is negatively related to income. Based on the

simulated changes, the greatest equity reductions occur in families where a household

member dies or in which a household member enters a nursing home.

      As a summary, the move probabilities and change in home equity results

reported in Tables 10-12 are combined to calculate expected change in housing equity.

These results are reported on an annual basis in Table 13. The top part of the table

shows results for movers who sell and buy another house. The bottom part shows

results for movers who sell and discontinue ownership. The table shows results by

equity-income quantile, as in several of the tables above. But in this table, the expected

change in equity is decomposed into its component parts: the probability of a move, and

the change in equity given a move. For example, consider the HRS 22 households.

Evaluated at the median of home equity and income, the expected increase in equity

through home “upgrading” is $815. Only 3.3 percent of families upgrade each year, but

those that do add $12,531 to home equity. Averaged over all HRS households, home
equity is increased by $823 through selling and buying a new home. Evaluated at the

median of home equity and income, about 1.5 percent of AHEAD 22 households move

and buy another home each year. Those that do add $7,426 to home equity. The

expected increase in home equity, averaged across all AHEAD household types, is

$399. Viewed in this way, the expected changes in the equity of HRS and AHEAD

households are not very different at the median: +$823 for the HRS group and +$399

for the AHEAD group.

      For HRS 22 households in the high-equity-low-income group, the expected


                                         Page 32
annual reduction in equity is -$486: 3.2 percent move and, given a move, the reduction

in home equity is -$7,711. Averaged over all HRS households in this high-equity-low-

income group, the expected reduction in home equity through selling and buying

another home is -$528. The AHEAD households reveal a similar pattern, although

again they are less likely to move than the younger HRS households.

      The estimates for persons who sell and discontinue ownership are shown in the

bottom portion of the table. Again consider 22 HRS families evaluated at the median of

equity and income. Only 0.7 percent of households discontinue ownership each year.

Those that do reduce equity by -$29,162 on average. Averaged over all HRS 22

families, equity is reduced by -$379 through divesting of homes. This reduction can be

compared to the +$815 average increase through upgrading.

      Overall, the average equity of all HRS households is reduced by -$610 in this

way, compared to an increase of +$823 through upgrading. For all AHEAD households

average equity is reduced by -$1,918 by sellers who discontinue ownership between

survey waves, compared to an increase of +$399 through movers who upgrade.

      Table 14 presents an accounting of the expected annual change in the home

equity of all HRS and of all AHEAD initial homeowners.14 The first column shows the

expected change in home equity for households who move and purchase another
home. (Recall that the expected change is the probability of a move times the average

change in home equity given a move.) In both surveys, families that move to a new

home increase home equity on average. The second column is the expected change in

home equity for households that discontinue ownership. These effects are negative and

largest among households experiencing precipitating shocks. The third column--the

sum of the first two columns--is the net annual change in home equity.


      14
       Waves of the HRS were two years apart. In the AHEAD there were two years
between wave 1 and wave 2, and three years between wave 2 and wave 3.
                                        Page 33
          On average, HRS households increase home equity by $214 per year. AHEAD

households, on average, reduce home equity by $1,918 annually. This represents a

decline of about 1.76% of initial home equity. Most of this reduction is accounted for

by households who experience precipitating shocks. For these households, home

equity falls by almost 7.84 percent per year. For continuing one- and two-person

households the changes are much smaller. Home equity of two-person households

declines by 0.11 percent per year, and home equity for one-person households fell by

1.15 percent per year.

          Thus in the absence of precipitating shocks there is little systematic reduction in

home equity as families age. Families who move to a new home increase home equity

on average. Reductions in equity come from families who sell and discontinue home

ownership. And most of these moves are associated with precipitating shocks to family

status.     We find no systematic withdrawal of home equity to support non-housing

consumption.



D.        CONCLUSIONS

          Home equity is the principle asset of a large fraction of elderly Americans. In this

paper we have used HRS and AHEAD panel data, as well as SIPP data, to determine
whether households withdraw assets from housing equity as they age. We give

particular attention to the relationship between changes in home equity and changes in

household structure. There are two ways for households to change home equity: by

discontinuing home ownership or by selling and moving to another home. W e find that

households are unlikely to discontinue home ownership. Giving up home ownership

most often follows the death of a spouse or entry of a family member into a nursing

home. But even in these circumstances, selling the home is the exception and not the

rule. In the absence of a precipitating shock, it is much more likely that a family will sell


                                             Page 34
and buy a new home than discontinue ownership. And, households who sell and buy

again tend to increase rather than reduce home equity. That is, assets are transferred

to housing. Overall--combining the effects of discontinuing ownership and moving to

another home--we find that housing equity of HRS households increases with age, and

the equity of AHEAD households declines slightly. The overall decline among the older

AHEAD households is about 1.76 percent per year is primarily accounted for a 7.84

percent decline among households experiencing precipitating shocks to family status.

Families that remain intact reduce housing equity very little, about 0.11 percent per year

for two-person households and 1.15 percent per year for one-person households.

      We use two approaches to determine whether households wish to reduce home

equity as they age. One approach is to compare changes in home equity of movers to

the changes of stayers. If households are withdrawing equity when they sell and move

to a new home, then the change in the equity of the movers will be smaller than the

change for stayer. These results, however, are confounded by the tendency of the

reported self-assessment of home valuation to exceed true home value. A comparison

of the selling price of a home with the prior self-assessment of the home value shows

that home values reported prior to a sale far exceed realized sales prices. Taking

account of the bias, we find that the comparison of equity in the old home compared to
the new home (and using the change in the home value of stayers as a control)

suggests that families who sell and buy a new home increase home equity on average.

      The second approach is based on the comparison of the selling price of the old

home (minus the mortgage on the home) with the reported equity value in the newly

purchase home. We believe that these are the most reliable data on the change in

home equity when an old home is sold and a new home is bought. Based on these

“sale price” data, we find that on average households increase home equity when they

move to a new house. We also find that equity-rich and income-poor families tend to


                                         Page 35
reduce home values when they sell and buy a new house. For continuing two-person

HRS households, for example, the between-wave reduction for those at the 80th equity

quantile and at the 20th income quantile is estimated to be -$15,422. On the other
hand, house-poor and income-rich families tend to increase home equity when they sell

and buy a new home. For continuing two-person HRS households at the 20th equity

quantile and the 80th income quantile, the increase in housing equity is estimated to be

+$54,778.

      As we emphasized in our earlier paper, these results suggest that in considering

whether families have saved enough to maintain their pre-retirement standard of living

after retirement, housing equity should not be counted on to support general non-

housing consumption. Families apparently do not intend to save to finance general

retirement consumption through investment in housing, as they might through a 401(k)

plan or through some other financial form of saving. Rather the findings here, as well as

our earlier findings, indicate that families purchase homes to provide an environment in

which to live, even as they age through retirement years. For these reasons, they are

unlikely to want reverse annuity mortgages to withdraw assets from home equity. It

may be appropriate, however, to think of housing as a reserve or buffer that can be

used in catastrophic circumstances that result in a change in household structure. In

this case, having used the home equity along the way–through a reverse mortgage for

example–would defeat the purpose of saving home equity for a “rainy day.”

      Although these results are based largely on new HRS and AHEAD data files, and

are based on different methods of analysis, the findings correspond closely to the

conclusions we reached in our earlier papers, based on different data sources. These

conclusions also correspond closely to the findings of a recent survey of older

households sponsored by the American Association of Retired Persons (AARP),

showing that the preponderance of older families agree with the statement that: “What


                                         Page 36
I'd really like to do is stay in my current residence as long as possible’."15 Like our

findings, the results of the AARP survey also imply that most households do not intend

to liquidate housing equity to support non-housing retirement consumption.




       15
            More detail is presented in Venti and Wise [2001].
                                            Page 37
                        APPENDIX: MORTALITY CORRECTION



       The analyses using the SIPP data are based on cohorts constructed from cross-

section surveys. For example, the home ownership (or home equity) profile for a cohort

is constructed by combining data for all households age A in the first survey year with

data for households age A+T from a survey T years later. If the likelihood of survival

from A to A+T is related to wealth, then these cohort profiles can be affected by

differential mortality. We correct for this problem by reweighting the sample.

Households are assigned an adjusted weight that is inversely related to the probability

of survival from age A to age A+T.

       Baseline estimates of these survival probabilities for one and two person

households are obtained from waves 1 and 2 of AHEAD. A one-person household

“survives” if the person is present in waves 1 and 2. A two-person household “survives”

if both members are present in the second wave. Survival probabilities are estimated

from the AHEAD for five year age intervals and for housing equity quartiles.

Households that are older and households that have lower levels of housing wealth are
less likely to survive. Since the AHEAD only includes households age 70 and over,

published survival rates by age (from the NCHS) were used to extrapolate the AHEAD

survival probabilities back to age 50.

       The final step is to reweight the data . For each household observation of age A

and housing equity quartile Q, the SIPP frequency weight is multiplied by the inverse of

the cumulative survival probability. The survival probabilities are assumed to be one




                                         Page 38
for households less than age 50. Thus households that are unlikely to survive are given

higher weights. For each observation the probability of surviving to age A given equity

quartile Q is



                                     A
                     S ( A, Q) =   ∏ s(a , a + 1: Q)
                                   a = 50




where s(a,a+1;Q) is the one-year survival rate for a household in equity quartile Q.

For each household in each year the SIPP frequency weight is multiplied by the inverse

of S(A,Q).




                                            Page 39
                                     REFERENCES



American Association of Retired Persons. May 2000. “Fixing to Stay: A National
Survey of Housing and Home Modification Issues.”

Congressional Budget Office. 1993. Baby Boomers in Retirement: An Early
Perspective. September.

Bernheim, B. Douglas. 1992. Is the Baby Boom Generation Preparing Adequately for
Retirement. Technical Report. Merrill Lynch. Princeton N.J.

Engen, Eric, William Gale and Cori Uccello. 1999. “The Adequacy of Retirement
Saving.” Brookings Papers on Economic Activity. Number 2, pp. 65-165.

Feinstein, Jonathan and Daniel McFadden. 1989. "The Dynamics of Housing Demand
by the Elderly: Wealth, Cash Flow, and Demographic Effects", in D. Wise (ed.) The
Economics of Aging, University of Chicago Press.

Gustman, Alan and Thomas Steinmeier. 1999. “Effects of Pensions on Savings:
Analysis with Data From the Health and Retirement Study.” Carnegie-Rochester
Conference Series on Public Policy. Vol. 50. June. P271-324.

Hurd, Michael. “Portfolio Holdings by the Elderly.” Mimeograph. December 1999.

Juster, F. Thomas and Richard Suzman. 1995. “An Overview of the Health and
Retirement Study.” Journal of Human Resources. Vol. 30. PS7-S56.

Kiel, Katherine and Jeffrey Zabel. 1999. “The Accuracy of Owner-Provided House
Values: The 1978-91 American Housing Survey.” Real Estate Economics. Vol. 27 no. 2
p. 263-298.

Mayer, Christopher and Katerina Simons. 1994. “Reverse Mortgages and the Liquidity
of Housing Wealth.” Journal of the American Real Estate and Urban Economics
Association. Vol. 22 No. 2 pp. 235-255.

Megbolugbe, Issac, Jarjisu Sa-Aadu, and James Shilling. 1997. “Oh, Yes, the Elderly
Will Reduce Housing Equity under the Right Circumstances.” Journal of Housing
Research. Vol. 8 no. 1 pp53-74.

Merrill, Sally R. 1984. "Home Equity and the Elderly", in H. Aaron and G. Burtless (ed.),
Retirement and Economic Behavior. Brookings Institution.

Merrill, Sally R, Meryl Finkel and Nadine Kutty. 1994. "Potential Beneficiaries From
Reverse Mortgage Products for Elderly Homeowners: An Analysis of AHS Data.”
Journal of the American Real Estate and Urban Economics Association. Vol. 22 No. 2
pp. 257-299.



                                         Page 40
Moore, James F. and Olivia S. Mitchell. 1997. “Projected Retirement Wealth and
Savings Adequacy in the Health and Retirement Study.” NBER Working Paper No.
6240, October.

Sheiner, Louise and David Weil. 1993. “The Housing Wealth of the Aged.” NBER
Working Paper No. 4115.

Venti, Steven F., and David A. Wise. 1989. "Aging, Moving, and Housing Wealth", in D.
Wise (ed.) The Economics of Aging, University of Chicago Press.

Venti, Steven F., and David A. Wise. 1990. "But They Don't Want To Reduce Housing
Equity", in D. Wise (ed.) Issues in the Economics of Aging, University of Chicago
Press.

Venti, Steven F. and David A. Wise. 1991. “Aging and the Income Value of Housing
Wealth.” Journal of Public Economics. Vol. 44. P. 371-397.

Venti, Steven F. and David A. Wise. 2001. “Aging and Housing Equity.” NBER Working
Paper No. 7882.




                                       Page 41
   Table 1. Household status sequences in the HRS and in the AHEAD/HRS

         Sequences in the HRS                  Sequences in the AHEAD/HRS

Sequence      N      All %   Group %         Sequence    N     All %    Group %

 2222        3311   43.75    68.39%            222      1203   19.93    55.75%
 2220         225    2.97     4.65%           22D        293    4.86    13.58%
 222D         156    2.06     3.22%            220       133    2.2      6.16%
 222S         42     0.55     0.87%           22N        33     0.55     1.53%
 222N         10     0.13     0.21%            22T       27     0.45     1.25%
 2200         307    4.06     6.34%           2DD        234    3.88    10.84%
 22DD         131    1.73     2.71%            200       112    1.86     5.19%
 22SS         47     0.62     0.97%           2DT         47    0.78     2.18%
 22D0         10     0.13     0.21%           2ND         26    0.43     1.20%
 2000         377    4.98     7.79%            2TT        20    0.33     0.93%
 2DDD         116    1.53     2.40%           2D0         19    0.31     0.88%
 2SSS         94     1.24     1.94%           2NN         11    0.18     0.51%
 2D00         15     0.2      0.31%          Subtotal   2158            100.00%
Subtotal     4841            100.00%

 1111        1832   24.21    68.61%            111      2217   36.74    57.70%
 1110         119    1.57     4.46%           11D        405    6.71    10.54%
 111D         52     0.69     1.95%           11N        186    3.08     4.84%
 111S         12     0.16     0.45%            110       142    2.35     3.70%
 111N         10     0.13     0.37%           1DD        462    7.66    12.02%
 1100         179    2.37     6.70%            100       266    4.41     6.92%
 11DD         69     0.91     2.58%           1ND         98    1.62     2.55%
 11SS         10     0.13     0.37%           1NN         66    1.09     1.72%
 1000         323    4.27    12.10%          Subtotal   3842            100.00%
 1DDD         64     0.85     2.40%
Subtotal     2670            100.00%          Other      35     0.6
                                               All      6035   100.02
 Other        57    0.74
  All        7568   99.98




                                   Page 42
Table 2. Percent Own, Rent, and Other By Age, from Wave 1 of the HRS and Wave
                                1 of the AHEAD

                One-Person Households            Two-Person Households
   age        own        rent      other       own        rent      other

  51-53       58.3       34.0       7.7        87.7       10.8        1.5
  54-56       54.5       37.0        8.4       90.9       7.7         1.4
  57-61       62.5       29.5        8.0       90.5       7.1         2.4
  70-74       67.5       22.8        9.8       91.1       7.0         1.9
  75-79       64.0       25.6       10.3       87.8       8.6         3.7
  80-84       60.3       25.3       14.4       81.1       12.8        6.0
   85+        48.4       31.8       19.9       78.7       15.1        6.2




                                   Page 43
Table 3. Tenure transitions, by initial tenure and by change in household status,
                  for HRS and AHEAD households, in percent.

                         Initial Homeowners in the HRS

 Change in                     Subsequent Period
 Household
                  Tenure        Status (%)           % Move              N
  Status

     22       own                   98.3               7.1              9173
              rent or other         1.7                65.7              165

     2D       own                   95.6               8.4              316
              rent or other         4.4                55.6              13

     2N       own                   88.6               18.9              12
              rent or other         11.4                0                 1

     11       own                   95.2               6.1              3150
              rent or other         4.8                54.5              169

     1N       own                   100                  0                3
              rent or other          0                                    0


                        Initial Homeowners in the AHEAD

 Change in                     Subsequent Period
 Household
                  Tenure        Status (%)           % Move              N
  Status

     22       own                   96.9               3.9              2332
              rent or other         3.1                38.5              75

     2D       own                   88.8               9.4              358
              rent or other         11.2               76.1              51

     2N       own                    75                6.4               35
              rent or other          25                79.9              14

     11       own                   91.3               4.5              2841
              rent or other         8.7                47.2              269

     1N       own                   39.9                0                57
              rent or other         60.1               92.6              79




                                     Page 44
                          Initial Renters-Others in the HRS

  Change in                      Subsequent Period
  Household
                    Tenure        Status (%)           % Move               N
   Status

      22        own                   22.3               51.3              220
                rent or other         77.7               21.1              822

      2D        own                   12.4               46.8              8
                rent or other         87.6               40.2              64

      2N        own                    0                                    0
                rent or other         100                47.5               5

      11        own                   11.4               46.5              239
                rent or other         88.6               22.2             2002

      1N        own                    0                                    0
                rent or other         100                43.6               3


                        Initial Renters-Others in the AHEAD

  Change in                      Subsequent Period
  Household
                    Tenure        Status (%)           % Move               N
   Status

      22        own                   11.9               8.8               31
                rent or other         88.1               10.4              253

      2D        own                   14.5               49.5              11
                rent or other         85.5               22.1              77

      2N        own                     5                 0                 1
                rent or other          95                34.3              17

      11        own                    7.4               12.6              128
                rent or other         92.6               14.4             1744

      1N        own                    3.4                0                 7
                rent or other         96.6               89.1              204

Note: Based on authors’ estimates from the HRS and AHEAD. All percentages are
based on weighted samples. However, the sample sizes presented in the table are
unweighted.




                                       Page 45
 Table 4. Mean Change in Housing Equity of Initial Owners, by change in family
 status and by subsequent tenure, for movers and stayers, means and medians.

                                    Mean Changes

                     Tenure in Subsequent Period      Number of Observations       Initial
 Change                                                                            Home
                         own rent or
in Status                                                     rent or
                                            all        own              all        Equity
                                 other                         other
  HRS

   22       all         6569     -54155        5855      8918     106   9024        102310
            stayer      6686                   6686      8295       0   8295        102852
            mover       5074     -54155       -3305       623     106    729         96335

   2D       all         6288     -28079       5547        294       7    301         83212
            stayer      8997                  8997        266       0    266         83939
            mover     -21935     -28079     -23169         28       7     35         77158

   2N       all         4203                  4203         12       0     12         83650
            stayer      4750                  4750          9       0      9         88372
            mover       1863                  1863          3       0      3         63426

   11       all           642    -48476       -697       2961      86   3047         95555
            stayer        935                  935       2779       0   2779         96012
            mover       -3739    -48476     -17549        182      86    268         90829

   1N       all       -44095                -44095          2       0          0     77747
            stayer    -44095                -44095          2       0          2     77747
            mover                                           0       0          0         0
AHEAD

   22       all        -4555     -73974      -5367       2309      30   2339        115978
            stayer     -4103                 -4103       2213       0   2213        115103
            mover     -15877     -73974     -29557         96      30    126        132706

   2D       all        -7182     -81900     -13805        354      39    393        105418
            stayer     -5777                 -5777        322       0    322        102228
            mover     -20432     -81900     -51390         32      39     71        120352

   2N       all       -18869    -105730     -37168         35      12     47        118825
            stayer    -18498                -18498         33       0     33        123456
            mover     -24319    -105730     -90020          2      12     14        105715

   11       all        -4675     -92350      -8446       2801     126   2927        102764
            stayer     -4011                 -4011       2671       0   2671        102209
            mover     -18500     -92350     -55077        130     126    256        108598

  g1N       all       -13013     -73671     -48315         57      72    129         77533
            stayer    -13013                -13013         57       0     57         82910
            mover                -73671     -73671          0      72     72         73671


                                          Page 46
                                       Medians

                     Tenure in Subsequent Period      Number of Observations       Initial
 Change                                                                            Home
                         own rent or
in Status                                                     rent or
                                            all        own              all        Equity
                                 other                         other
  HRS

   22       all          693     -50905        1474      8918     106   9024         81033
            stayer      1745                   1745      8295       0   8295         81326
            mover       -360     -50905       -4946       623     106    729         72721

   2D       all         -1632    -32530       1474        294       7    301         71491
            stayer       2217                 2217        266       0    266         73193
            mover       -5481    -32530     -10999         28       7     35         42594

   2N       all         6794                  2450         12       0     12         79994
            stayer     -2311                 -2311          9       0      9         79994
            mover      15899                 15899          3       0      3         87989

   11       all           125    -40633         222      2961      86   3047         60493
            stayer        639                   639      2779       0   2779         62333
            mover        -389    -40633       -8854       182      86    268         49376

   1N       all         -3971                 -3971         2       0          0     33971
            stayer      -3971                 -3971         2       0          2     33971
            mover                                           0       0          0

AHEAD

   22       all         -5179    -64173      -2348       2309      30   2339         90242
            stayer      -2087                -2087       2213       0   2213         89114
            mover       -8271    -64173     -16869         96      30    126        101608

   2D       all       -10008     -73322      -4869        354      39    393         80090
            stayer     -2303                 -2303        322       0    322         76706
            mover     -17712     -73322     -50761         32      39     71         80217

   2N       all       -26230     -90242     -13978         35      12     47         90242
            stayer     -9941                 -9941         33       0     33         95882
            mover     -42520     -90242     -54145          2      12     14         90242

   11       all         -2087    -73322      -2434       2801     126   2927         73799
            stayer      -1739                -1739       2671       0   2671         73322
            mover       -2434    -73322     -37434        130     126    256         74869

   1N       all         -6040    -64173     -39921         57      72    129         64173
            stayer      -6040                -6040         57       0     57         69521
            mover                -64173     -64173          0      72     72         64173




                                          Page 47
Table 5. Change in the housing equity of initial owners and initial renters, by
                         change in family status.

                       Means                           Medians
Family    Change Change in   Initial             Change in     Initial   Number
Status      in    Housing  Housing                Housing    Housing
          Tenure  Equity     Equity                Equity      Equity

 HRS
  22
            OO        6565      102893              1695        81326     8919
            OR       -61073      61073             -50905       50905      164
            RO        64117        0                35000         0        215
            RR           0         0                  0           0        822
            All        6192      92472                0         72721     10120
  2D
            OO        6223       84329              1734        72721      296
            OR       -75575      75575             -52281       52281      12
            RO        45707        0                6000          0         8
            RR           0         0                  0           0        64
            All        3345      69176                0         56928      380
  2N
            OO        4203       83650              2450        79994      12
            OR          0          0                  0           0         1
            RO                                                              0
            RR          0          0                 0            0         5
            All       2850       56727               0          34854      18

  11        OO         642       96874               621        62333     2961
            OR       -50716      50716             -40663       40663      161
            RO        51883        0                36361         0        228
            RR           0         0                  0           0       2002
            All        1126      57784                0         20897     5352
  1N
            OO       -44095      77747             -3971        33971       2
            OR                                                              0
            RO                                                              0
            RR          0          0                 0            0         3
            All      -25501      44964             -3971        33971       5




                                    Page 48
AHEAD

 22
        OO     -4555   116475       -2217   90242   2309
        OR    -80472    80472      -67682   67682    74
        RO     79697      0         45000     0      31
        RR       0        0            0      0      253
        All    -5241   103938        -207   80217   2667
 2D
        OO     -7182   107705       -2631   80217   354
        OR    -80749    80749      -73322   73322   50
        RO     70915      0         58825     0      11
        RR       0        0           0       0      77
        All   -10956    86415         0     62042   492
 2N
        OO    -18869   122320       -9941   95882    35
        OR    -97003    97003      -84602   84602    14
        RO     13369      0         13369     0       1
        RR       0        0           0       0      17
        All   -29941    90771       -9782   62042    67

 11     OO     -4675   103232       -1739   74869   2801
        OR    -81412    81412      -67682   67682    266
        RO     73623      0         50269     0      128
        RR       0        0           0       0     1744
        All    -5265    64540         0     37434   4939
 1N
        OO    -13013   82910        -6040   69521   57
        OR    -72546   72546       -56401   56401   79
        RO     57386     0          65000     0      7
        RR       0       0            0       0     204
        All   -18043   30229          0       0     347




                         Page 49
           Table 6. Comparison of Estimated Home Values and Sale Prices

                             Estimate of       Reported
             Interval and                                       Mean        Percent
  Survey                    Home Value in     Sale Price in
             Sample Size                                      Difference   Difference
                             Initial Year      Next Year

                                        Means
   HRS        1992-1994
                N=250         135,607             115,665      19,942        14.7

              1994-1996
                N=233         157,068             123,883      33,186        21.1

              1996-1998
                N=236         162,264             138,206      24,048        14.8


  AHEAD       1993-1995
                N=163         101,568             81,625       19,943        19.6

              1995-1998
                N=179         131,382             109,447      21,935        16.7


                                        Medians
   HRS        1992-1994
                N=250         106,151             96,208        7,117         6.7

              1994-1996
                N=233         109,838             98,347        8,083         7.4

              1996-1998
                N=236         140,159             122,276       8,290         5.9


  AHEAD       1993-1995
                N=163          83,848             69,094        5,888          7

              1995-1998
                N=179          89,445             77,081        6,546         7.3

Source: Authors’ calculations from the AHEAD and HRS. All figures are in 1998 dollars
are use household weights.




                                        Page 50
Table 7. Estimates of the mover equity effect using stayers as the “control” group,
 for initial homeowners, for two- and one-person households, for the HRS and the
                    AHEAD households, by estimation method.

                         OLS Estimates                      Median Regression Estimates
 Change in       time              mover                     time            mover
                             t                t                        t                t
 household      effect   statistic effect statistic         effect statistic effect statistic
   status          (t)              (m)                        (t)            (m)

    HRS
   2 to 2       6686       2.26     -1612    0.15           1745    6.98    -2104     2.24
   2 to 1       8997       2.62    -30931    2.67           2216    1.66    -7698     1.76
   2 to N       4750       0.26     -2887    0.07           -2311   0.2     18210     1.16
   1 to 1        935       0.45     -4674    0.57            639    1.8     -1028     0.73
   1 to N

  AHEAD
   2 to 2       -4103      2.46    -11774    1.38           -2087   4.05     -6185    2.46
   2 to 1       -5777      1.5     -14656    1.18           -2303   1.51    -15409    3.16
   2 to N      -18498      2.61     -5821    0.21           -9941   3.77    -32579    4.49
   1 to 1       -4011      2.57    -14489    1.99           -1739   5.28      -696    0.47
   1 to N

Note: Too few observations to estimate 1 to N transitions




                                         Page 51
     Table 8. Comparison of initial reported home equity, selling price minus
              mortgage, and home equity at the end of the interval.

                     Initial reported               Reported equity
                                      Selling price    at end of      Sample size
      Interval       equity prior to minus mortgage
                       home sale                        interval

                 Mean for Households that Purchased Another House
      HRS
    1992-1994             76518          64940           89317           181
    1994-1996            112382          86599          126228           174
    1996-1998            108412          89038          120990           166
     AHEAD
    1993-1995            108821          89284          110690            71
    1995-1998            154104         114388          123737            61

           Mean for Households that Did Not Purchase Another House
      HRS
    1992-1994         61851           55697           0                   55
    1994-1996         52308           57226           0                   48
    1996-1998         72408           86769           0                   38
     AHEAD
    1993-1995         75857           61543           0                   44
    1995-1998         78005           72313           0                   51


             Median for Households that Purchased Another House
      HRS
    1992-1994         57679          49806          65903                181
    1994-1996         74941          69045          88852                174
    1996-1998         82636          72082         110964                166
     AHEAD
    1993-1995         78258          67826          79590                 71
    1995-1998         95013          70606          96000                 61


           Median Households that Did Not Purchase Another House
      HRS
    1992-1994        55137           39649           0                    55
    1994-1996        32819           42664           0                    48
    1996-1998        69561           85949           0                    38
     AHEAD
    1993-1995        72668           65244           0                    44
    1995-1998        79590           73213           0                    51

Notes:
1. No imputed variables are used.
2. All values are in 1998 dollars.
3. The data are not weighted.



                                      Page 52
Table 9. Estimates of the change in home equity for movers who bought another
 home, by method of estimations, for HRS and AHEAD intervals, in 1998 dollars.

                      Estimated                  t            Sample size
    Interval          Change in              statistic
                     Home Equity

                                OLS Estimates
     HRS
   1992-1994            24377                 3.54                181
   1994-1996            39629                 2.86                174
   1996-1998            31952                 4.55                166
    AHEAD
   1993-1995            21406                 1.37                 71
   1995-1998            9349                  0.59                 61

 HRS (pooled
   waves)
    2 to 2              31345                 6.39                373
    1 to 1              40014                 1.73                96
    other               20742                 1.5                 52
AHEAD (pooled
   waves)
    2 to 2              13887                 0.91                 63
    1 to 1              9052                  0.45                 52
    other               43794                 2.01                 17

                        Median Regression Estimates
     HRS
   1992-1994            6303                  1.86                181
   1994-1996            15455                 2.35                174
   1996-1998            19803                 3.42                166
    AHEAD
   1993-1995             1066                 0.24                 71
   1995-1998             9818                 1.12                 61

 HRS (pooled
   waves)
   2 to 2               17153                 4.01                373
   1 to 1                -294                 0.04                86
    other               8856                  1.11                52
AHEAD (pooled
   waves)
   2 to 2               3438                  0.37                 63
   1 to 1                 0                     0                  52
    other               10111                 0.55                 17




                                   Page 53
Table 10. Probit estimates of move probabilities, for HRS and AHEAD households.

           Buy Another Home                                Discontinue Ownership

                                  HRS Households
               Estimate t-stat                               Estimate   t-stat
    w11        -0.25623 -3.24                    w11         -0.00725    0.06
    w22        -0.19400 -2.64                    w22         -0.30320    2.71
     E         0.00051 0.37                       E          -0.00625    3.22
     Y         0.00822 4.09                       Y          -0.01961    2.66
    EY         -0.00004 -1.59                    EY           0.00006    0.37
  constant     -1.35449 -18.92                 constant      -1.80789   16.81

            Selected Quantiles of income and initial reported home equity
                income equity                           income    equity

    20th        17871     30796                     20th      17871      30796
    50th        42986     68192                     50th      42986      68192
    80th        81105    131984                     80th      81105     131984

                    Simulated Probabilities at Selected Quantiles

                                  2 to 2 Households
                         equity                                         equity
   income        20th     50th     80th         income         20th      50th      80th

    20th         0.063            0.063             20th      0.015              0.013
    50th                 0.065                      50th                0.013
    80th         0.069            0.070             80th      0.011              0.009

                                  1 to 1 Households
                equity                                        equity
   income        20th     50th     80th         income         20th      50th      80th

    20th         0.055            0.056             20th      0.031              0.027
    50th                 0.058                      50th                0.026
    80th         0.061            0.062             80th      0.023              0.020

                           Other Households (21, 2N, 1N)
                equity                                 equity
   income        20th     50th    80th     income       20th             80th

    20th         0.090            0.091             20th      0.031              0.027
    50th                 0.094                                          0.027
    80th         0.099            0.099             80th      0.024              0.021




                                          Page 54
                               AHEAD Households

        Buy Another Home                                Discontinue Ownership

  w11       -0.11317 1.34                     w11         -0.90675   13.57
  w22       -0.17486 1.99                     w22         -1.36739   15.47
   E        0.00909 3.24                       E          -0.00438    0.74
   Y        0.01433 1.87                       Y          -0.02379    1.09
  EY        -0.00049 2.27                     EY          -0.00091    0.61
constant    -1.69889 20.83                  constant      -0.70091    8.89

         Selected quantiles of income and initial reported home equity

             income   equity                              income     equity

 20th        10909     37434                     20th      10909      37434
 50th        21433     74869                     50th      21433      74869
 80th        40609    139042                     80th      40609     139042

                 Simulated Probabilities at Selected Quantiles

                               2 to 2 Households
                      equity                                         equity
income        20th     50th     80th         income         20th      50th      80th

 20th        0.034              0.041            20th      0.017              0.015
 50th                 0.037                      50th                0.015
 80th        0.037              0.043            80th      0.014              0.011

                               1 to 1 Households
                      equity                               equity
income        20th     50th     80th         income         20th      50th      80th

 20th        0.039              0.047            20th      0.049              0.044
 50th                 0.043                      50th                0.044
 80th        0.042              0.049            80th      0.041              0.035

                        Other Households (21, 2N, 1N)
             equity                                                  equity
income        20th     50th     80th         income         20th      50th      80th

 20th        0.049              0.059            20th      0.228              0.211
 50th                 0.054                                          0.212
 80th        0.053              0.062            80th      0.204              0.182




                                       Page 55
 Table 11. Estimates of the change in home equity based on income and equity
  levels, by estimation method, for the HRS and the AHEAD households, with
   simulated change in equity for selected income and equity quantiles. For
                     households purchasing another home.

                                     HRS Households

                     OLS                               Median regression
              estimate      t-stat                    estimate      t-stat

11 Families     48.4        0.00                       -762.6        -0.08
22 Families    2134.4       0.16                       9765.2         1.04
   Equity     -5315.7      -10.91                     -4798.4        -8.53
  Income      2593.1        4.40                       2024.1         2.33
 Income*        10.5        1.20                        18.4          0.57
   Equity
 Constant     47719.4       3.64                      25646.6         2.60

              Selected quantiles of income and initial home equity

              income        equity
   20th        17871        30796
   50th        42986        68192
   80th        81105       131984

       Simulated equity changes for selected income and equity quantiles

  2 to 2
                        equity                                     equity
  income       20th        50th         80th                20th     50th     80th

   20th       38176                    -15422          24353                 -23870
   50th                    25061                                    11929
   80th       54778                     1854           37510                 -9537

  1 to 1
                        equity                                     equity
  income       20th        50th         80th                20th     50th     80th

   20th       36090                    -17508          13825                 -34397
   50th                    22975                                     1402
   80th       52692                     -232           26982                 -20065

21, 2N, 1N
                        equity                                     equity
  income       20th        50th         80th                20th     50th     80th

   20th       36041                    -17557          14588                 -33635
                           22926                                     2164
   80th       52644                     -280           27744                 -19303



                                         Page 56
                                AHEAD Households

                     OLS                          Median regression
              estimate      t-stat               estimate      t-stat

11 Families   -15713.5     -0.49                 -20551.8          -0.80
22 Families    -8999.6     -0.29                   231.9            0.01
   Equity      -6234.6     -5.21                  -7619.1          -4.56
  Income       5998.9       1.83                   2289.0           0.60
 Income*         37.5       0.36                   141.5            0.64
   Equity
 Constant     60189.0       1.82                 54972.1            1.77

              Selected quantiles of income and initial home equity

              income       equity

   20th        10909        37434
   50th        21433        74869
   80th        40609       139042

       Simulated equity changes for selected income and equity quantiles

  2 to 2
                         equity                                  equity
  income        20th        50th      80th                20th     50th     80th

   20th        34548                 -28386        29758                   -46091
   50th                    17970                                   5337
   80th        52781                 -9021         38129                   -33449

  1 to 1
                         equity                                  equity
  income        20th        50th      80th                20th     50th     80th

   20th        27834                 -35099        8974                    -66874
   50th                    11256                                  -15447
   80th        46067                 -15735        17345                   -54233

21, 2N, 1N
                         equity                                  equity
  income        20th        50th      80th                20th     50th     80th

   20th        43547                 -19386        29526                   -46323
   50th                    26970                                   5105
   80th        61781                  -22          37897                   -33681




                                      Page 57
Table 12. Estimates of the change in home equity based on income, by estimation
method, for the HRS and the AHEAD households, with simulated change in equity
for selected income and equity quantiles. For households not purchasing another
                                     home.

                                 HRS Households

                          OLS                          Median regression
                  estimate       t-stat                estimate    t-stat

 11 Families      13084.3        0.86                   10552.8        0.48
 22 Families      18754.4        1.37                   18635.4        0.85
    Equity          0.0          0.00                     0.0          0.00
   Income         -1791.8        2.40                   -2063.0        1.46
  Income*           0.0          0.00                     0.0          0.00
    Equity
  Constant        -69374.6       5.16                   -52943.1       2.63

               Selected quantiles of income and initial home equity

                  income         equity
    20th           17871         30796
    50th           42986         68192
    80th           81105        131984

       Simulated equity changes for selected income and equity quantiles

    2 to 2
                             equity                              equity
   income           20th          50th         80th           20th 50th         80th

    20th          -53822                     -53822     -37994                 -37994
    50th                        -58323                                -43176
    80th          -65153                     -65153     -51040                 -51040

    1 to 1
                             equity                              equity
   income           20th          50th         80th           20th 50th         80th

    20th          -59492                     -59492     -46077                 -46077
    50th                        -63993                                -51258
    80th          -70823                     -70823     -59122                 -59122

  21, 2N, 1N
                             equity                              equity
   income           20th          50th         80th           20th 50th         80th

    20th          -72577                     -72577     -56630
                                -77077                                -61811 -61811
    80th          -83907                     -83907     -69675               -69675


                                          Page 58
                              AHEAD Households

                   OLS Estimates                      Median regression
                 estimate     t-stat                  estimate    t-stat

11 Families       24825.9       1.81                   27010.7        2.30
22 Families       24737.6       1.66                   35495.2        2.47
   Equity           0.0         0.00                      0.0         0.00
  Income          -6200.7       2.47                    -6954.9       1.43
 Income*            0.0         0.00                      0.0         0.00
   Equity
 Constant        -72100.7       4.79                   -71111.1       6.05

              Selected quantiles of income and initial home equity

                 income        equity

   20th           10909         37434
   50th           21433         74869
   80th           40609        139042

     Simulated equity changes for selected income and equity quantiles

  2 to 2
                            equity                                equity
  income           20th          50th        80th        20th        50th      80th

   20th          -54127                    -54127      -43203                 -43203
   50th                        -60653                                -50522
   80th          -72544                    -72544      -63859                 -63859

  1 to 1
                            equity                                 equity
  income           20th          50th        80th               20th 50th      80th

   20th          -54039                    -54039      -51688                 -51688
   50th                        -60565                                -59007
   80th          -72455                    -72455      -72344                 -72344

21, 2N, 1N
                            equity                                 equity
  income           20th          50th        80th               20th 50th      80th

   20th          -78865                    -78865      -78698                 -78698
   50th                        -85391                                -86017
   80th          -97281                    -97281      -99354                 -99354




                                        Page 59
   Table 13. Summary of annual change in home equity, decomposed into
  probability of a move times the change in equity given the move, by family
   status, for selected equity and income quantiles. Based on probit move
                  probability estimates and OLS equity change
                                                Equity-Income Quantile
                                  50-50       80-20     20-80   80-80    20-20
                  For movers who sell and buy a new home
HRS     22      Prob OmO            .033        .032     .035     .035     .032
                Change|OmO          12531      -7711    27389     927     19088
                Expected Change      815        -486     1890     65      1203
        11      Prob OmO            .029        .028     .031     .031     .028
                Change|OmO          11488      -8754    26346     -116    18045
                Expected Change      667        -490     1607      -7      993
        Other   Prob OmO            .047        .046     .050     .050     .045
                Change|OmO          11463      -8779    26322     -140    18021
                Expected Change     1078        -799     2606     -14     1622
        All     Expected Change      823        -528     1935     42      1221
AHEAD   22      Prob OmO            .015        .017     .015     .018     .014
                Change|OmO          7426       -11730   21810    -3728    14276
                Expected Change      275        -481      807     -160     486
        11      Prob OmO            .018        .019     .017     .020     .016
                Change|OmO          4651       -14504   19036    -6502    11502
                Expected Change      200        -682      800     -319     449
        Other   Prob OmO            .022        .024     .022     .026     .020
                Change|OmO          11145      -8011    25529      -9     17995
                Expected Change      602        -473     1353      0       882
        All     Expected Change      399        -528     1045     -130     650




                                    Page 60
                For movers who sell and discontinue ownership
                                              Equity-Income Quantile
                                   50-50     80-20    20-80     80-80    20-20
HRS     22       Prob OmR           .007      .007     .006      .005     .008
                 Change|OmR        -29162    -26911   -32577    -32577   -26911
                 Expected Change    -379      -350     -359      -293     -404
        11       Prob OmR           .013      .014     .012      .010     .016
                 Change|OmR        -31997    -29746   -35412    -35412   -29746
                 Expected Change    -832      -803     -815      -708     -922
        Other    Prob OmR           .014      .014     .012      .011     .016
                 Change|OmR        -38539    -36289   -41954    -41954   -36289
                 Expected Change   -1041      -980    -1007      -881    -1125
        All      Expected Change    -610      -576     -588      -502     -662
AHEAD   22       Prob OmR           .006      .006     .006      .005     .007
                 Change|OmR        -25063    -22367   -29977    -29977   -22367
                 Expected Change    -376      -336     -420      -330     -380
        11       Prob OmR           .018      .018     .017      .014     .020
                 Change|OmR        -25027    -22330   -29940    -29940   -22330
                 Expected Change   -1101      -983    -1228     -1048    -1094
        Other    Prob OmR           .088      .087     .084      .075     .094
                 Change|OmR        -35286    -32589   -40199    -40199   -32589
                 Expected Change   -7481     -6876    -8200     -7316    -7430
        All      Expected Change   -1918     -1743    -2116     -1849    -1907




                                   Page 61
Table 14. Accounting for the change in home equity among initial homeowners in
                            the HRS and the AHEAD

                  Expected Annual Change in Home Equity
 Survey and      Move and                                    Initial home % of initial
                              Discontinue
 household     purchase new home ownership        All            equity    equity
  structure        home

HRS
 22                  815              -379            436      75128          0.58
 11                  667              -832           -166      81105         -0.20
 Other              1078             -1041            37       79858          0.05
 All                 823              -610            214      76952          0.28

AHEAD
 22                  275              -376            -101     94257         -0.11
 11                  200             -1101            -901     78496         -1.15
 Other               602             -7481           -6879     87777         -7.84
 All                 399             -1918           -1519     86445         -1.76

column1: Pr(OmO)* E(DHE|OmO)
column 2: Pr(OmR)* E(DHE|OmR)
column 3: E(DHE|O)
column 4: Initial home equity of sellers




                                           Page 62
                      Figure 1. Percent Owning for Two-Person Households
                                   Mortality Adjusted Data from SIPP

          100

           90

           80

           70

           60
Percent




           50

           40

           30

           20

           10

            0
                26 29 32 35 37 39 41 43 45 47 49 51 53 55 57 59 61 63 65 67 69 71 73 75 77 79
                                                     Age




                       Figure 2. Percent Owning for One-Person Households
                                   Mortality Adjusted Data from SIPP

          100

           90

           80

           70

           60
Percent




           50

           40

           30

           20

           10

            0
                26 29 32 35 37 39 41 43 45 47 49 51 53 55 57 59 61 63 65 67 69 71 73 75 77 79
                                                     Age
                              Figure 3. Home Equity for Two-Person Households
                                     Mortality and CPI Adjusted Data from SIPP

           100000

            90000

            80000

            70000

            60000
Dollarst




            50000

            40000

            30000

            20000

            10000

                   0
                       26 29 32 35 37 39 41 43 45 47 49 51 53 55 57 59 61 63 65 67 69 71 73 75 77 79
                                                            Age



                              Figure 4. Home Equity for One-Person Households
                                     Mortality and CPI Adjusted Data from SIPP

           70000


           60000


           50000


           40000
Dollars




           30000


           20000


           10000


               0
                       26 29 32 35 37 39 41 43 45 47 49 51 53 55 57 59 61 63 65 67 69 71 73 75 77 79
                                                            Age
                           Figure 5a. Percent Owning for Two-Person Households
                                                     Data from HRS and AHEAD


           100

            90

            80

            70

            60
 Percent




            50

            40

            30

            20

            10

             0
                 50   52   54   56   58   60    62    64    66    68        70    72    74    76   78   80   82   84   86   88    90    92
                                                                                 Age


                           Figure 5b. Percent Owning for Two-Person Households
                                                      Data from AHEAD Only

           100

            90

            80

            70

            60
Percent




            50

            40

            30

            20

            10

             0
                 70   71   72   73   74   75   76    77    78    79    80    81    82    83   84   85   86   87   88   89   90   91    92    93
                                                                                 Age
                                Figure 6a. Percent Owning for One-Person Households
                                                         Data from HRS and AHEAD

                    100

                     90

                     80

                     70

                     60
          Percent




                     50

                     40

                     30

                     20

                     10

                      0
                          50   52   54   56   58   60   62   64   66   68   70    72    74   76   78   80   82   84   86   88   90   92   95
                                                                                  Age



                               Figure 6b. Percent Owning for One-Person Households
                                                             Data from AHEAD Only

          100

           90

           80

           70

           60
Percent




           50

           40

           30

           20

           10

               0
                     70 71 72 73 74 75 76 77 78 79 80 81 82 83 84 85 86 87 88 89 90 91 92 93 95
                                                                                 Age
                        Figure 7a. Mean Home Equity for Two-Person Households
                                                  Data from HRS and AHEAD

          140000
          130000
          120000
          110000
          100000
           90000
           80000
Dollars




           70000
           60000
           50000
           40000
           30000
           20000
           10000
               0
                   50    52   54   56   58   60   62     64    66    68    70        72    74    76    78   80   82   84   86   88   90   93
                                                                               Age




                        Figure 7b. Mean Home Equity for Two-Person Households
                                                       Data from AHEAD Only

          140000
          130000
          120000
          110000
          100000
           90000
           80000
Dollars




           70000
           60000
           50000
           40000
           30000
           20000
           10000
               0
                   70    71   72   73   74   75   76    77    78    79    80    81    82    83    84   85   86   87   88   89   90   91   93
                                                                               Age
                             Figure 8a. Mean Home Equity for One-Person Households
                                                       Data from HRS and AHEAD

          110000
          100000
                90000
                80000
                70000
Dollars




                60000
                50000
                40000
                30000
                20000
                10000
                    0
                        50    52   54   56   58   60   62   64   66   68   70   72    74   76   78   80   82   84   86   88   90   92   95
                                                                                Age



                             Figure 8b. Mean Home Equity for One-Person Households
                                                            Data from AHEAD Only

                110000

                100000

                 90000

                 80000

                 70000

                 60000
      Dollars




                 50000

                 40000

                 30000

                 20000

                 10000

                        0
                             70 71 72 73 74 75 76 77 78 79 80 81 82 83 84 85 86 87 88 89 90 91 92 93 95
                                                                                Age
                              Figure 9a. Median Home Equity for Two-Person Households
                                                            Data from HRS and AHEAD

          140000
          130000
          120000
          110000
          100000
             90000
             80000
Dollars




             70000
             60000
             50000
             40000
             30000
             20000
             10000
                      0
                          50    52   54    56    58    60       62    64    66   68   70   72    74    76    78    80        82    84    86   88   90   93
                                                                                       Age



                               Figure 9b. Median Home Equity for Two-Person Households
                                                                     Data from AHEAD Only

                    140000
                    130000
                    120000
                    110000
                    100000
                     90000
                     80000
          Dollars




                     70000
                     60000
                     50000
                     40000
                     30000
                     20000
                     10000
                          0
                               70    71   72    73    74   75    76    77   78   79   80   81    82   83    84    85    86    87    88   89   90   91   93
                                                                                           Age
                            Figure 10a. Median Home Equity for One-Person Households
                                                       Data from HRS and AHEAD

          110000
          100000
                90000
                80000
                70000
Dollars




                60000
                50000
                40000
                30000
                20000
                10000
                    0
                        50    52   54   56   58   60   62   64   66   68   70   72    74   76   78   80   82   84   86   88   90   92   95
                                                                                Age



                            Figure 10b. Median Home Equity for One-Person Households
                                                            Data from AHEAD Only

                110000

                100000

                 90000

                 80000

                 70000

                 60000
      Dollars




                 50000

                 40000

                 30000

                 20000

                 10000

                        0
                             70 71 72 73 74 75 76 77 78 79 80 81 82 83 84 85 86 87 88 89 90 91 92 93 95
                                                                                Age
                               Figure 11a. Mean Non-Housing Equity for Two-Person Households
                                                 Data from HRS and AHEAD

          500000

          450000

          400000

          350000

          300000
Dollars




          250000

          200000

          150000

          100000

          50000

                     0
                          50       52   54   56   58   60   62   64   66   68   70   72    74   76   78   80   82   84   86   88   90   93
                                                                                 Age




                                   Figure 11b. Mean Non-Housing Equity for Two-Person Households
                                                       Data from AHEAD Only

                     500000

                     450000

                     400000

                     350000

                     300000
           Dollars




                     250000

                     200000

                     150000

                     100000

                         50000

                               0
                                    70 71 72 73 74 75 76 77 78 79 80 81 82 83 84 85 86 87 88 89 90 91 92
                                                                                     Age
                        Figure 12a. Mean Non-Housing Equity for One-Person Households
                                          Data from HRS and AHEAD

          240000



          200000



          160000
Dollars




          120000



          80000



          40000



               0
                   50    52   54   56   58   60   62   64   66   68   70   72    74   76   78   80   82   84   86   88   90   92   95
                                                                           Age



                    Figure 12b. Mean Non-Housing Equity for One-Person Households
                                        Data from AHEAD Only

          240000



          200000



          160000
Dollars




          120000



          80000



          40000



               0
                   70 71 72 73 74 75 76 77 78 79 80 81 82 83 84 85 86 87 88 89 90 91 92 93 95
                                                                           Age
                    Figure 13a. Median Non-Housing Equity for Two-Person Households
                                        Data from HRS and AHEAD

           200000

           180000

           160000

           140000

           120000
Dollars




           100000

           80000

           60000

           40000

           20000

                0
                    50    52   54   56   58   60   62   64   66    68    70    72    74       76    78    80    82   84   86   88   90   93
                                                                             Age



                     Figure 13b. Median Non-Housing Equity for Two-Person Households
                                          Data from AHEAD Only

           200000

           180000

           160000

           140000

           120000
 Dollars




           100000

            80000

            60000

            40000

            20000

                0
                     70   71   72   73   74   75   76   77   78   79    80    81    82   83    84    85    86   87   88   89   90   91   93
                                                                             Age
                    Figure 14a. Median Non-Housing Equity for One-Person Households
                                       Data from HRS and AHEAD

           50000




           40000




           30000
Dollars




           20000




           10000




               0
                   50   52   54   56   58   60   62   64   66   68   70   72    74   76   78   80   82   84   86   88   90   92   95
                                                                          Age



                        Figure 14b. Median Non-Housing Equity for One-Person Households
                                             Data from AHEAD Only
           50000




           40000




           30000
 Dollars




           20000




           10000




               0
                    70 71 72 73 74 75 76 77 78 79 80 81 82 83 84 85 86 87 88 89 90 91 92 93 95
                                                                          Age