Taxes, Homeownership, and the Allocation of Residential Real Estate Risks

Satyajit Chatterjee

Vice President and Economist

September/October 1996

Business Review — The saving habits of Americans have aroused a great deal of interest in recent years. While attention has focused mostly on how much people save (it is commonly thought that the typical American saves too little), the form in which households save is perhaps just as important.

In fact, American use a large fraction of their savings to buy houses. In a recent study, Arthur Kennickell and Martha Starr-McCluer reported that, in 1992, the median holdings of financial assets such as checking deposits, savings accounts, bonds, CDs, mutual funds, life insurance, and stocks were $24,000 among homeowners. In contract, the median value of a primary residence among homeowners was nearly $82,000, and the median value of their total debt (including mortgages and home equity loans) was only $38,000. Clearly, a large chunk of the typical homeowner's lifetime savings is tied up in the family house. Since 64% of American households are homeowners, the importance of home equity to household assets is beyond doubt.

This article appeared in the September/October 1996 edition of Business Review.

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