Housing Market Meltdown Will Cause Massive Losses in Household Wealth

[Chimichurri]

"As Senators McCain and Obama fine-tune their plans for Social Security in preparation for the 2008 presidential election, a new report from the Center for Economic and Policy Research (CEPR) shows that, due to the collapse of the housing bubble, the vast majority of Americans have accumulated little or no wealth. This means that they will be almost completely reliant on Social Security and Medicare to support them in their retirement years."

.....

"The report projects that if house prices stay the same through 2009, the median household headed by a person between the ages of 45 and 54, those in their prime earning years, will have 24.7 percent less wealth than did the median household in this age group in 2004. These households will have accumulated just $113,268 in net worth in 2009, barely $15,000 more than their counterparts in 1989, whose net worth totaled $97,600.

If real house prices fall 10 percent, the median household in the 45 to 54 cohort will see a 34.6 percent loss in wealth compared with the median in 2004 while families in the 18 to 34 cohort will lose of 67.6 percent. If prices fall by 20 percent, the most pessimistic scenario, families in the 55-64 cohort will experience a loss of 49.6 percent of their wealth compared to the same cohort in 2004."

...
This analysis should also prompt serious re-examination of policy proposals to cut Social Security and Medicare for near retirees. Baker commented, “policies that perhaps could have been justified at the peak of the housing bubble make much less sense now that tens of millions of near-retirees have just seen most of their wealth disappear.”

In analyzing wealth holdings for these families, the authors used data from the Federal Reserve Board’s 2004 Survey of Consumer Finance. The authors also used the S&P 500 and the Case-Shiller 20-City Composite Index to adjust for equity values and home price changes between 2004 and 2009.

http://www.cepr.net/index.php/press-releases/press-releases/housing-market-meltdown-will-cause-massive-losses-in-household-wealth/

[Double T]

1. The bush/cheney greatest depression spirals downward into the abyss.

[enid602]

2. BY 2009?

"These households will have accumulated just $113,268 in net worth in 2009. . . " I think they meant BY 2009.

[Redstone]

3. "Will Cause?" Uh, guys, it already "HAS caused." Our house is worth $90,000 less than

it was two years ago, and we live in a town that people fight each other for the opportunity to move to.

And that $90K devaluation is not fun for us to know about, but it doesn't have any real effect on our lives.

However, I do really feel for the people who, through no fault of their own (like, say, medical problems) had to borrow against the inflated value of their house, which "value" is shot to hell now.

Thank you, W, for your wonderful economic policies of the last 7 years.

Redstone

[Lance_Boyle]

4. it's utter crap to count one's home as "wealth"

WTF kind of "wealth" requires that you part with it before realizing any benefit? OK, so you can live in it and not be wealthy, or you can sell it and be wealthy and homeless. Brilliant.

Houses are not investments, folks. They are buildings in which to live. If your "retirement plan" relies on selling your house, you did it wrong.

[Fumesucker]

9. There is such a thing as a "reverse mortgage" where you can tap the value of your home..

While you still live in it.

Buying a home is far closer to being an "investment" than renting.

[slackmaster]

5. There is a serious flaw inherent in this kind of analysis

Equity in a primary residence is widely included in assets when calculating net worth. However, when housing prices go down it affects both the price you could get selling your house, AND the price you could expect to pay for another house, OR the rent you would pay if you decide to go that route.

It's really not that important unless you are planning to sell out and become homeless.

[Chimichurri]

6. Housing hasn't gone negative since the The Great Depression.

People counted on their homes and their investments for retirement. Now their homes have lost value and because the housing bubble has far reaching consequences, their retirement investments, pension plans etc have also lost value. In a matter of a few short years, people who have worked all their lives doing the right thing will now in their retirement have to come up with other solutions.

If those of us in our thirties and forties and fifties are smart, we will also make proper retirement adjustments now while we still can. Since November, the fund my 401K plan used to be in has lost over 20% of it's value, with no end in sight. I switched it out in February but my mother, who depends on hers, did not. She's lost a huge chunk of her savings.

It's complex and to just dismiss analysis because it's unpleasant is flawed.

[digidigido]

7. WRONG WRONG WRONG

Housing has gone negative in almost every recession that I can remember.
Housing prices went crazy in CA from 88 to 92 then tanked for years.
They began to pick up again and went crazy. New York real estate in
the 80's crashed deepl, the went up like crazy.
Real estate ALWAYS has it's ups and downs just like the stock market.

[slackmaster]

8. Housing prices fell as recently as the late 1980s to mid 1990s

My brother bought a house in 1985 and had to sell it for a loss in 1987 because his job (the Navy) transferred him out of the country. I bought mine in December 1994 when prices were significantly lower than they had been a few years earlier.

... the fund my 401K plan used to be in has lost over 20% of it's value, with no end in sight. I switched it out in February but my mother, who depends on hers, did not. She's lost a huge chunk of her savings....

Sounds like your mother was too heavily invested in stocks for her age.

My 401k is down about 17% this year, but I am still contributing. It is likely to be down for a while, and it is likely to go back up in the future. I still have about 10 years of full-time work.