Foreclosure Crisis to Cause Massive Losses in Household Wealth in 2009
Monday, July 28, 2008
by Michael Peron
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According to a new report from the Center for Economic and Policy Research (CEPR), which analyzed the wealth holdings of families in all age cohorts in 2004 and projected their wealth in 2009, the vast majority of these families will have “little or no housing wealth” next year.
CEPR's findings were fashioned from three scenarios: real house prices remain at current levels, real house prices fall by an additional 10 percent, or real house prices fall by an additional 20 percent.
Should house prices stay the static through 2009, CEPR's report estimates the median household headed by a person between the ages of 45 and 54 in 2009, will see a 24.7 decrease in wealth than the median household in this age group in 2004. In 2009, this age group would have seen $113,268 in net worth, just $15,000 more than their counterparts in 1989.
The report projects that if real house prices fall 10 percent, this same population that was analyzed, will experience a 34.6 percent loss in wealth when compared to the median in 2004. And should prices fall 20 percent, the “most pessimistic ratio,” according to CEPR, families in the 55-64 age bracket will see a 49.6 percent loss in wealth, when compared to the same population in 2004.
“This extraordinary destruction of wealth will have tremendous implications for millions of families,” said report coauthor Dean Baker. “Coupled with a very low personal savings rate, this means that many people, especially those near retirement will only have Social Security and Medicare to rely on once they leave the workforce.”
CEPR says this analysis should be a strong proponent for reevaluating the policy proposals by both presidential candidates to cut Social Security and Medicare for near retirees. “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,” Baker said.
Editor's Note: CEPR used data from the Federal Reserve Board's 2004 Survey of Consumer Finance to analyze wealth holdings in it's study titled “The Impact of the Housing Crash on Family Wealth.” In addition, the authors used the S&P 500 and Case-Shiller 20-city Composite Index to adjust for equity values and home price changes between 2004 and 2009. Jacqueline Gilbert | 07.09.08
CEPR's findings were fashioned from three scenarios: real house prices remain at current levels, real house prices fall by an additional 10 percent, or real house prices fall by an additional 20 percent.
Should house prices stay the static through 2009, CEPR's report estimates the median household headed by a person between the ages of 45 and 54 in 2009, will see a 24.7 decrease in wealth than the median household in this age group in 2004. In 2009, this age group would have seen $113,268 in net worth, just $15,000 more than their counterparts in 1989.
The report projects that if real house prices fall 10 percent, this same population that was analyzed, will experience a 34.6 percent loss in wealth when compared to the median in 2004. And should prices fall 20 percent, the “most pessimistic ratio,” according to CEPR, families in the 55-64 age bracket will see a 49.6 percent loss in wealth, when compared to the same population in 2004.
“This extraordinary destruction of wealth will have tremendous implications for millions of families,” said report coauthor Dean Baker. “Coupled with a very low personal savings rate, this means that many people, especially those near retirement will only have Social Security and Medicare to rely on once they leave the workforce.”
CEPR says this analysis should be a strong proponent for reevaluating the policy proposals by both presidential candidates to cut Social Security and Medicare for near retirees. “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,” Baker said.
Editor's Note: CEPR used data from the Federal Reserve Board's 2004 Survey of Consumer Finance to analyze wealth holdings in it's study titled “The Impact of the Housing Crash on Family Wealth.” In addition, the authors used the S&P 500 and Case-Shiller 20-city Composite Index to adjust for equity values and home price changes between 2004 and 2009. Jacqueline Gilbert | 07.09.08
