Two thirds of American households own their home. For many of them three out of four of them, their homes represent a large portion of their wealth. Many of these homeowners are able to use the value of their homes when making important financial decisions. The unrealized gains in their homes provide Americans with access to cash for emergencies as well as for the purchase of big-ticket items. Further, realized capital gains from the sale of a previously owned home are a significant source of downpayment funds for a majority of repeat buyers whose next home is frequently larger and more expensive.

The NATIONAL ASSOCIATION OF REALTORS® recently conducted a survey of homeowners about their spending and saving behavior resulting from both unrealized and realized capital gains from their homes.


Key Findings

Unrealized Gains
Most homeowners have unrealized gains in the homes in which they live.

• The typical homeowner has unrealized gains of $50,000.
  
• Higher income households have more equity in their home.
  
• Households with incomes greater than $75,000K typically have a median of $100,000 in equity.
  
• Households with incomes less than $40,000 typically have a median of $40,000 in equity.

Older Americans have more home equity.

• Households aged 50 or older have a median equity of $80,000.
  
• Households younger than 40 years old have a median equity of $35,000.

Sixteen percent (16%) of homeowners who have unrealized capital gains in their property have changed their spending or saving behavior as a result. (As a comparison, a study by the Federal Reserve suggests that just three percent of holders in stock equity have changed their spending or saving behavior.)

• More significant spending or saving behavior changes are evident among higher income households.
  
• The amount of unrealized gains, home price expectations, or job security have little impact on spending or saving behavior changes.

Homeowners tap this unrealized wealth through a variety of methods.

• Just over half homeowners tapping their unrealized wealth do so through the use of a home equity loans or second mortgage.
  
• Twenty-two percent of these homeowners pulled cash out of their home when they refinance their mortgage.
  
• Seven percent increased spending through decreased savings.

Homeowners are much more likely to have most of their wealth in their home, as opposed to stocks, bonds, and pension plans.

• Of the homeowners who know which is greater, three out of every four respondents say that their house wealth is greater than their stock wealth.
  
• Nearly half of homeowners are not sure if they have more wealth in their home or in stocks and bonds.

Realized Gains from Previous Homes Sales
Most repeat homebuyers use the capital gains from the sale of their previous home as a source of downpayment funds for their home purchase.

• Seventy-six percent of repeat homebuyers used all of the capital gains from the sale of their previous home for the downpayment on their current home.
  
• Another 10 percent of households put some of the gains back into their new home.
  
• Only 15 percent of repeat homebuyers did not use the realized equity for the downpayment on their current home.

According to other NATIONAL ASSOCIATION OF REALTORS® surveys, nearly two out every five repeat homebuyers chose to move specifically to a larger, more expensive (or at least newer) home. By using the realized capital gains from the sale of a previous home to buy a larger home, these homebuyers improve their standard of living and increase their potential for building even greater household wealth.

The Research Division of the NATIONAL ASSOCIATION OF THE REALTORS® conducted the survey of homeowners on their spending and saving behavior that results from the wealth they have in their home during August and early September 2001. 459 American homeowners participated in this telephone survey. All respondents had been homeowners for at least three years.