Volume 17, Issue 3

2006

 

Financial and market conditions in the 1990s caused a sharp increase in
the housing debt (in constant dollars) of households now approaching or just
past normal retirement age. Households now in middle age have also set new
records for housing debt and will likely continue to carry high housing debt
when they reach old age in 10 or 20 years.

In the future, this housing debt burden is likely to lead to financial and
housing adjustments that suggest a qualitative change in behavior when these
households reach the later stages of their working life. Many will need to work
longer to service housing debt. When facing a life-cycle downturn in annual
income, households will be increasingly motivated to tap into their home
equity, both by borrowing, for those who stay in their homes, or by downsizing
and liquidating some equity, for those who choose to move.