April 2007: What Moved my Wealth?
Studies by the Federal Reserve Board have shown that an increase in housing wealth leads to an increase in long-run consumption 1.5 times greater than stock wealth increases. Homeownership in Puerto Rico is estimated at around 80% of households. Several arguments support this theory. For instance, home prices are less volatile than stock prices. Stocks are highly concentrated among high-income individuals. Finally, stocks are subject to capital gain taxes and early withdrawal penalties. In contrast, housing wealth receives a more favorable tax treatment. Will future gains in housing wealth require a healthy mortgage banking industry and an efficient construction industry in PR? Currently the mortgage banking industry is facing tough times. In addition, the signs of a slowing construction industry and declining stock prices, raised concerns about what would be the source of household wealth for the upcoming years.