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.Does anyone feel sorry for them?
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. ...
The housing bubble had another perverse effect on our planning: It led us to save less. "Many people thought, 'I'm wealthier, I already have a big chunk of my nest egg thanks to my house, so I don't have to save as much,' " says Moody's Economy.com chief economist Mark Zandi.
Using asset gains as an excuse to cut back on saving can be dangerous, especially when those gains come during a period of unprecedented returns. Bloated asset values can be illusory — and temporary. ...
Many homeowners exacerbated the damage done by falling prices by borrowing heavily from their homes. Federal Reserve economist James Kennedy estimates that from 2002 through 2007 owners pulled $2.5 trillion in equity out of their homes via cash-out refinancings and home-equity loans.
That's nearly a third of the increase in home values over that period. ... Today's housing collapse will likely rank among the biggest debacles in modern American economic history.
Tuesday, September 02, 2008
The Housing Bust Hurts Baby Boomers
Money Magazine says the housing bust hurts baby boomers' retirement: