The Relationship Between Homeowner Age and House Price Appreciation

This paper focuses on the empirical question: Do the houses of elderly homeowners appreciate at the same rate as the average house in their local market? As the population ages and retirees plan their financial future, owners need to project accurately the value of their single largest asset, their house. The federal government is also concerned about the financial welfare of its elderly citizens, not only because the government funds many elderly programs, but also because the government provides insurance for reverse mortgages. The future liability of the fund depends on the house price appreciation for the properties of elderly owners. Six theories are considered with support from the literature. However, the primary contribution of this paper is the empirical analysis.

Based on estimations from the Health and Retirement Survey (HRS), the house values of elderly (75 years or more) owners appreciate in real terms at 1.0 to 1.2 percentage points less per year than the houses of middle-aged (50 to 74 year old) owners. These estimates are smaller than the findings by Davidoff (2004) who used the American Housing Survey to show 3 percentage point slower appreciation for owners aged more than 75 relative to all other owners. Using Census microdata on non-longitudinal data (1990 and 2000), the estimate is 2.4 percentage point slower appreciation. The conclusion is that elderly homes appreciate in real terms at 1 to 3 percentage points slower than their local markets.