Home Equity in Retirement∗ Makoto Nakajima† Federal Reserve Bank of Philadelphia

Retired homeowners dissave more slowly than renters, which suggests that homeownership affects retirees ’ saving decisions. We investigate empirically and theoretically the life-cycle patterns of homeownership, housing and nonhousing assets in retirement. Using an esti-mated structural model of saving and housing decisions, we find, first, that homeowners dissave slowly because they prefer to stay in their house as long as possible, but cannot easily borrow against it. Second, the 1996-2006 housing boom significantly increased homeowners’ assets. These channels are quantitatively significant; without considering homeownership, retirees ’ savings are 24-43 % lower