Is Housing Wealth an "ATM"? The Relationship Between Household Wealth, Home Equity Withdrawal, and Saving Rates

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Abstract: This paper examines the roles that increasing personal wealth and home equity withdrawal (HEW) have had in the decline in the personal saving rate in the United States. It does so by comparing the U.S. experience with that of Australia, Canada, and the United Kingdom. Mortgage market liberalization and innovation reduce household cash-flow and collateral constraints while making housing wealth more liquid as HEW becomes easier over time. Regression analysis indicates the expected negative relationship between U.S. saving and net worth, with a somewhat smaller coefficient than in previous empirical studies. Changes in HEW are found not to have a significant impact on U.S. saving in the short or long run. In that sense, housing wealth is not an "ATM." [JEL E21, G21]