Home Values And Declining Net Worth
You’ve heard the expression. “A picture is worth a thousand words.” Earlier today, Money Magazine senior editor Walter Updegrave wrote on the CNN Money website:
You already know that the housing crisis has wreaked havoc with the economy and financial markets, not to mention the lives of millions who’ve lost or could lose their homes. But there may be a less obvious casualty too: your retirement prosperity.
According to a recent report from the Center for Economic and Policy Research, a Washington, D.C. think tank, the collapse of house prices that started in 2006 has wiped out more than $4 trillion in home equity, putting a sizable dent in the net worth of millions of baby boomers.
Among its more ominous findings: By next year, the average net worth of households headed by homeowners age 45 to 54 will be almost 25% less than it was in 2004.
Now, that last number depends on U.S. home prices stabilizing next year. But what if prices continue to fall?
Any questions?
Source:
“How the housing crash hurts your retirement”
Walter Updegrave
CNN Money, September 2, 2008
September 2nd, 2008 at 5:54 pm
How the housing crash hurts your retirement depends upon how much wealth you have managed to squirrel away, not including whether you have paid off your house, nor what it is worth.
What is that old saying…don’t put all of your eggs in one basket?
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In other news, the great blog HousingPanic is shutting down on November 5th. Where will all its great (and not-so-great) posters congregate afterwards? Your blog may become a bit busier then - but be ready to see things become more lively here.
As always, thanks for all the info here - please keep up the good work!
-Mammoth
September 3rd, 2008 at 8:09 am
I presume that the study is not allowing for prices to rise again. If they stay depressed, then wealth will fall 20%, 29%, or 33%. How likely is that, given the axiom of inflation, and the fact that the housing market will bottom and re-emerge.
Provided that demand for homes resumes to exceed new supplies to meet household formation, which it will (plenty of people just want to move, have second homes, etc.), demand will rise faster than supply, and prices will rise. This will grow wealth.
September 3rd, 2008 at 8:47 am
Thanks for the comments Mammoth.
“…don’t put all of your eggs in one basket?”
How about it.
“In other news, the great blog HousingPanic is shutting down on November 5th. Where will all its great (and not-so-great) posters congregate afterwards?”
Was not aware of this. Sorry to hear Keith is moving on with his blog. I visit HP on a regular basis, and post comments every once in a while. If the HP audience needs a home, I say, the more the merrier over here at B2B.
“As always, thanks for all the info here - please keep up the good work!”
Thanks Mammoth for the positive feedback. Don’t worry readers— I’m not planning on going away anytime soon. However, once I suspect the U.S. economy is on firm ground again, then I’ll be more than happy to pull the plug on this blog.
Until then…
September 3rd, 2008 at 9:08 am
Thanks for the comment Rebecca.
“If they stay depressed, then wealth will fall 20%, 29%, or 33%. How likely is that, given the axiom of inflation, and the fact that the housing market will bottom and re-emerge.”
The question is, when will the housing market bottom and re-emerge? Personally, I don’t see it happening anytime soon. Real estate has a tendency to do bad in tough economic times— which is where I think we’re heading. How bad? It lost 73% of its value during the Great Depression, for example.
I don’t doubt that housing will probably bottom and re-emerge. However, home prices, and as an extension, household net worth might be down for quite some time. What, then, will the homeowner do who is depending on their home to finance their retirement?
September 3rd, 2008 at 9:57 am
“What, then, will the homeowner do who is depending on their home to finance their retirement?”
—–
Option 1: Sell, and then rent, while hoping that inflation will not eat up too high a percentage of the proceeds from the home sale.
Option 2: Cut spending drastically, while becoming more self-sufficient.
Option 3: Forego retirement and continue working.
Option 4:
-Mammoth
September 3rd, 2008 at 12:59 pm
$4 trillion loss? No. That $4T is pure hot air bubble, not real asset worth. It should not been there in the first place. It represents part of the trillions of Fed credit money creation out of thin air, not to support a growing real economy, but to artificially pump up the financing and building of things which has no net increase in value. Therefore it is natural that the $4 trillion be returned back to thin air.
September 4th, 2008 at 7:26 am
Thanks for the comment Mammoth.
September 4th, 2008 at 7:29 am
Thanks for the comment TomK.
“Therefore it is natural that the $4 trillion be returned back to thin air.”
…but not before a lot of crying by a number of homeowners.