Fisher Center for Real Estate and Urban Economics

Economists have puzzled over the apparent failure of older homeowners to cash out home equity. Casual observation, however, suggests that older homeowners undermaintain their homes. Estimated home equity reduction may thus be biased downward if self-reported home values do not incorporate the market's view of the state of repair. American Housing Survey data show that homeowners over 75 spend approximately $270 less per year on routine home maintenance than younger owners of similar homes and approximately $1,100 less on all home improvement. Older homeowners realize weaker price appreciation than younger owners of similar homes in the same markets over identical horizons by approximately three percent per year. Older homeowners do, thus, take money out of their homes. The large magnitude of depreciation relative to expenditure differences suggests the availability of maintenance projects with positive financial and consumption benefits to a large number of older homeowners. The results are difficult to explain within a standard life cycle model given the near absence of a market for reverse mortgages.