The definition of income used in the NIPAs excludes one important financial resource that could be used for consumption expenditures. Capital gains are not included in income in the NIPAs.
Although only realized capitals gains provide cash that can be spent, unrealized gains can be used as collateral to support additional borrowing of cash, or they may be treated as substitutes for saving out of current income. When a household owns an asset that has increased in value, the household could potentially spend the capital gain yet still have as high a net worth as it did before the gain occurred.
In recent years, the personal sector has enjoyed large capitals gains on real estate. The rising net worth resulting from these gains is often cited as contributing to the increases in consumption expenditures that have depressed personal saving. Personal mortgage indebtedness has grown at about the same high rate as the value of real estate owned by persons. Some of the new mortgage debt has been used directly for consumption expenditures by households who have increased their loan balances by refinancing or by drawing on a home equity line of credit. In other cases, increased mortgage debt has been used by buyers to pay higher prices for homes, and the sellers receiving those prices have undoubtedly used some of their gains to fund consumption expenditures. Finally, unrealized capital gains on their real estate may have caused some households to save less of their current income than they otherwise would have.