30% of late baby boomers owe more than their homes are worth
Filed under: Real Estate, Retire, Recession
A new report from the Center for Economic and Policy Research shows that, not surprisingly, Baby Boomers have watched their wealth evaporate during the recent economic beat-down. Since 2004, the median household between the ages of 45 and 54 saw its net worth decline by more than 45% since 2004, currently standing at a pitiful $80,000, including home equity. For those between the ages of 55 and 65, the losses were 38%, down to $140,000.And here's the most startling statistic: "Nearly 30% of late baby boomers will need to bring cash to a closing to cover their outstanding mortgage and transactions costs."
In the press release, the CEPR lamented that "Plummeting house prices and investment losses will leave millions of Baby Boomers dependent on Social Security in their retirement." The report (PDF) states that "Finally, the projections show that for both age groups, the renters within each wealth quintile in 2004 will have more wealth in 2009 than homeowners in all three scenarios. In the second and third scenarios, renters will have dramatically more wealth in 2009 than homeowners who started in the same wealth quintile. Homeownership is not everywhere and always an effective way to accumulate wealth. For those who owned a home in the last few years, the collapse of the housing bubble led to the destruction of much or all of their wealth."
That seems more surprising than it is, and CNN twisted the data by reporting that "The CEPR also found that people who were renting homes in 2004 will have more wealth in 2009 than those who were owners."
That seems amazing given that according to a 2004 Federal Reserve study, the average renter had a net worth of $4,000 while the average homeowner's net worth was $184,000.
Those two data points seem to be in conflict, but that's only because the CEPR research has been misreported. What that data really shows is that the few wealthy people who didn't own homes in 2004 are now wealthier than similarly wealthy people who did. Similarly, poor people who didn't own homes in 2004 are now less poor than similarly poor people who did. That's really not at all surprising given the rout that has taken place in housing. But over the long-term, home ownership has been the best path to accumulating wealth and think about it: Many of the people in that top 10% of net worth wouldn't have gotten there without home ownership in the first place, but that isn't factored into the data at all.
There's nothing wrong with the data that's been released by CEPR.. But using it to make the argument that home ownership isn't a way to build wealth -- as Peter Schiff does -- because of a few years of unprecedented market weakness is pretty lame, and families who opt to stay in rentals are foregoing what has historically been a tremendous way to build net worth.
Reader Comments (Page 1 of 1)
3-02-2009 @ 10:29PM
blogs11111 said...
Yeah well try to tell that to the people whose home's wiped out their wealth. Mortgage payments larger than rent. Property tax, homeowner's insurance, maintaining the property, etc. Then the mortgage is bigger than the value of the home. Might not be a constant phenomena but it only takes one time to destroy a person's faith in homeownership. American dream or nightmare, depends alot on timing.
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3-03-2009 @ 6:57AM
Odie said...
I agree i dont want to be so negative about all this but i see billions lost and thrown down the drain from the goverment and just on an all out global meltdown it is truly a nightmare i cant wake up from.Im 46 pipe welder i aint rich.My wife is a Teacher here in south Texas.Im out of work we got hit by hurricane ike in sept 08 just as bush was on tv talking about how our finincial system is sound i generated power for 3 weeks.or enuff for a tv,frige,and 2 or 3 lites.all this hit us at the same time .Now i have a hernia,and as of today we are 30days late on our house held by citi.No help from FEMA,UNEMPLOYMENT,NOBODY it taken my retirement to a joke if my wife didnt love this house so much i would walk away from it 40,000 underwater,Somebody help me!!! well Thank GOD im in AMERICA.yours truly Odie
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3-03-2009 @ 6:59AM
Odie said...
OH YEA EVEN OUR HOME OWERS ASS. WENT FROM 179.00 A YEAR TO 259.00 THIS YEAR......................
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3-10-2009 @ 8:29PM
kelcya said...
well apparently the market has really hurt the retirement for many people. i read news a month ago how people are coming out of their retirement to work again lol, which is sad.
people are second guessing their retirement because of the recent slumps in the market.
http://retirement.newsbind.com/economy-has-boomers-rethinking-retirement/
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3-12-2009 @ 11:34AM
jktwaw said...
gee has anybody thought this meltdown was/is a deliberate attempt to prevent the baby boomers from retiring? nice way to save social security without political fallout.
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3-28-2009 @ 10:16AM
Connie said...
In working at home in my business, more and more I'm seeing retired people coming into their own business as a means to securing their retirement. You're very correct that they are coming back into the labor force to work again. We're seeing a huge change in age groups that are looking to work at home. In this recession, they have to. Definitely smart on their part...Seems like almost no one is untouchable. The homes being lost...families in crisis..what happened to our country?
Connie
http://www.SavanaSmiles@gmail.com
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5-18-2009 @ 11:37AM
James Hendrick said...
Sold a home in California about three years ago. We were the original owners. At that time there was some competition as "for sale" signs were popping up all over the neighborhood. The house sold for $325. We dropped 25 for the buyer. We then moved to the east coast and bought a wonderful home for 165. On a recent trip back to our hometown, I couldn't resist visiting the Bakersfiled home. The house was in foreclosure. Out of curiosity, I called the realtor and found out the house was now priced at $160 by the bank. I'm sure it could be bought for even less. I almost cried when I saw the condition of the house and yard. The pool hadn't been filled for 3 years, and the pump was laying on it's side in the tall weeds along with dead palms and bushes. My family began in this house, so many memories still lingered there. What is going on with this country?
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