Intergenerational Transfers, Borrowing Constraints, and Saving Behavior: Evidence from the Housing Market

Posted: 27 Jun 1998

See all articles by Gary V. Engelhardt

Gary V. Engelhardt

Syracuse University - Center for Policy Research; Dartmouth College - Department of Economics; National Bureau of Economic Research (NBER)

Christopher J. Mayer

Columbia Business School - Finance and Economics; National Bureau of Economic Research (NBER)

Date Written: October 1995

Abstract

This paper examines the effects of intergenerational transfers on saving behavior by examining private wealth transfers targeted toward first-time home purchases. The study of transfer behavior in the housing market is advantageous for a number of reasons: the down payment requirement associated with home purchase can be thought of as an important, well-defined borrowing constraint that most U.S. households face; private wealth transfers targeted to home purchases are significant; and home equity is a highly important component of household wealth in the United States. The empirical analysis shows that transfer recipients have a saving rate that is lower than that of non-recipients by as much as 6 percentage points, representing a reduction of 39 to 49 percent in the household saving rate. In addition, households that receive transfers reduce the time required to save for the down payment by 22 percent. For each dollar of transfer received, households increase the dollar amount of the down payment by about 85 cents, allowing them to achieve a higher down payment threshold. Households also increase the value of the home purchased upon receiving a transfer, but by an amount that is much lower than would be possible if the transfer were fully leveraged. The amount of the transfer appears to be targeted to help households achieve certain down payment thresholds that give favorable terms on mortgages. Although the evidence suggests that the availability of a transfer reduces household savings, we cannot reject the alternative hypothesis that transfer recipients are inherently low savers.

JEL Classification: R20

Suggested Citation

Engelhardt, Gary V. and Mayer, Christopher J., Intergenerational Transfers, Borrowing Constraints, and Saving Behavior: Evidence from the Housing Market (October 1995). Available at SSRN: https://ssrn.com/abstract=9059

Gary V. Engelhardt (Contact Author)

Syracuse University - Center for Policy Research ( email )

426 Eggers Hall
Syracuse, NY 13244
United States
315-443-4598 (Phone)
315-443-1081 (Fax)

Dartmouth College - Department of Economics ( email )

Hanover, NH 03755
United States

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

Christopher J. Mayer

Columbia Business School - Finance and Economics ( email )

3022 Broadway
New York, NY 10027
United States

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

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