Download or read book The Effect of Declining House Prices on Household Savings. A Theoretical and Empirical Study of the Dutch Case written by Eduard Suari Andreu and published by . This book was released on 2015 with total page 36 pages. Available in PDF, EPUB and Kindle. Book excerpt: In this paper I analyse the effect of a decrease in house prices on the savings of households. The life cycle model predicts that homeowners compensate an unexpected decrease in home equity by increasing their savings, and that the effect becomes stronger as the age of the household increases. To test these hypotheses I use panel data from the Dutch Central Bank Household Survey (DHS) for the period between 2003 and 2013. The results of the econometric analysis show a negative and significant effect on the savings of homeowners of the yearly price change in the second hand housing market. The effect becomes stronger with age and it appears to be asymmetric between positive and negative changes in house prices.However, homeowners do not appear to react neither to self-reported measures of house price changes nor to their own one-year expectations about future house prices. This might be because, on the one hand, households are not consistent in the way they report changes in the price of the own house, and, on the other hand, longer term expectations may be more important than one-year expectations.