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  • Rent To Own

    The Wealth of the Baby Boom Cohorts after the Collapse of the Housing Bubble
    by David Rosnick and Dean Baker Executive Summary

    This paper makes projections of wealth for 2009 for the baby boom cohorts (ages 45 to 54 and ages 55-64) using data from the 2004 Survey of Consumer Finance. It updates an earlier paper on this topic from June of 2008 using projections for housing and stock values that are more plausible given the sharp downturn in both markets over the last 8 months, and creates three possible scenarios -- from best- to worst-case -- for baby boomers' wealth in 2009.


    The projections show:


    1) The median household with a person between the ages of 45 to 54 saw its net worth fall by more than 45 percent between 2004 and 2009, from $150,500 in 2004 to just $82,200 in 2009 (all amounts are in 2009 dollars). This figure, which includes home equity, is not even sufficient to cover half of the value of the median house in the United States. In other words, if the median late baby boomer household took all of the wealth they had accumulated during their lifetime, they would still owe more than half of the price of a typical house and have no other assets whatsoever.1


    2) The situation for early baby boomers is somewhat better. The median household with a person between the ages of 55 and 64 saw its wealth fall by almost 38 percent from $229,600 in 2004 to $142,700 in 2009. This net worth would be sufficient to allow these households, who are at the peak ages for wealth accumulation, to cover approximately 80 percent of the cost of the median home, if they had no other assets.


    3) As a result of the plunge in house prices, many baby boomers now have little or no equity in their home. According to our calculations, nearly 30 percent of households headed by someone between the ages of 45 to 54 will need to bring money to their closing (to cover their mortgage and transactions costs) if they were to sell their home. More than 15 percent of the early baby boomers, people between the ages of 55 and 64, will need to bring money to a closing when they sell their home.


    These calculations imply that, as a result of the collapse of the housing bubble, millions of middle class homeowners still have little or no equity even after they have been homeowners for several decades. These households will be in the same situation as first-time homebuyers, forced to struggle to find the money needed to put up a down payment for a new home. This will make it especially difficult for many baby boomers to leave their current homes and buy housing that might be more suitable for their retirement.


    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.


    This analysis indicates that the loss of wealth due to the collapse of the housing bubble and the plunge in the stock market will make the baby boomers far more dependent on Social Security and Medicare than prior generations. While it will be desirable to develop more secure mechanisms for workers to save for retirement in the future, the baby boom generation for the most part has insufficient time remaining before retirement to accumulate substantial savings. Therefore, they will be largely dependent on social insurance programs to support them in retirement.




    1 These calculations exclude wealth in defined benefit pensions.

    Dean Baker is co-director of the Center for Economic and Policy Research in Washington, DC. David Rosnick is an Economist at the Center for Economic and Policy Research in Washington, DC. The text above is the executive summary of David Rosnick and Dean Baker, "The Wealth of the Baby Boom Cohorts after the Collapse of the Housing Bubble," Center for Economic and Policy Research, February 2009, from which the two charts above are also reproduced. Read the full text of the paper at <http://www.cepr.net/documents/public...th-2009-02.pdf>.

  • #2
    Re: Rent To Own

    The sad thing is that few who read that study will be surprised.

    Comment


    • #3
      Re: Rent To Own

      Schadenfreude only goes so far.

      Reality will have to be dealt with.

      Comment


      • #4
        Re: Rent To Own

        I LOVE being a renter. Pay about 1/2 of what it would cost to own. WHOOPEEE!!!! And I don't have to sink money in this pit...

        Comment


        • #5
          Re: Rent To Own

          Thanks for posting this data! It's scary to be over half the baby boomer age and have nearly as much liquid assets as some in those age groups - not by creating some amazing business, but just by being a cheap renter over the past few years.

          Speaking about social security, I got a letter from SSA a few months ago with some commentary stating the coming problems of funding the baby boomers as they enter retirement. Any younger itulipers on here try to confront their baby-boomer parents about the potential problems with social security benefits & pensions?

          Comment


          • #6
            Re: Rent To Own

            Originally posted by grapejelly View Post
            I LOVE being a renter. Pay about 1/2 of what it would cost to own. WHOOPEEE!!!! And I don't have to sink money in this pit...
            Welcome to the renter and gold club GJ.

            BTW: I just voted you the official "commodity basket selector" of iTulip currency unit. :p

            Comment


            • #7
              Re: Rent To Own

              Originally posted by LargoWinch View Post
              Welcome to the renter and gold club GJ.

              BTW: I just voted you the official "commodity basket selector" of iTulip currency unit. :p
              Thank you! I guess that makes me a commodity basket weaver

              Comment


              • #8
                Re: Rent To Own

                Originally posted by grapejelly View Post
                Thank you! I guess that makes me a commodity basket weaver
                I'm weaving away in my rental too. I buy gold with the money I don't spend on a mortgage, taxes and upkeep. Slow and steady she goes; gradually uphill while most are heading down.

                Comment


                • #9
                  Re: Rent To Own

                  Sold my house last June. Had it on the market for only eight days. The second looker made me an offer and we accepted it, closed in five weeks and haven't looked back. Of course, at the time I felt I was losing out on a ton of 'assumed equity' that I thought I would have been able to lock in if I had sold a year earlier. After the last few months I realize that selling, moving out of the rustbelt, and becoming a long-term renter has freed up my capital, allowed me to preserve much of my net worth, and now I have many options that would not be available if I had continued to sink money into my house, nice as it was.

                  We live in a rental, on the water on Puget Sound. We pay $2000 a month rent for a modern, timber frame home, 3500 SF, 3 acres, etc that would still probably sell for 750K, even today. To service that kind of mortgage would be about 4-5 times my rent. My landlord owns several houses. There are many more available in the area, some are very nice and for less rent. Why would I want to buy? I can't for the life of me think of a single reason!
                  Last edited by reallife; February 27, 2009, 01:02 AM. Reason: add a second paragraph

                  Comment


                  • #10
                    Re: Rent To Own

                    Originally posted by plinko View Post
                    Any younger itulipers on here try to confront their baby-boomer parents about the potential problems with social security benefits & pensions?
                    I don't know about "confront". I think it will end badly for the Boomers, in general. The budgetary crisis is now: the present financial crisis, and our policy response to it, has moved up the date. I'm fairly certain that Gen-X and Y will have enough time after the present entitlement programs fall apart for a new, workable system to emerge -- and enough warning to prepare themselves. Unfortunately, failure of the entitlement system is going to occur right when the Boomers are retiring (partly because they are retiring), and there will be no time for them to prepare better, or for the system to right itself. Further, although the Boomers are a large age cohort, the number of retired will never be as large as the number of workers. Since the failure of the entitlement programs is going to occur in the midst of a larger economic and budgetary crisis, it is quite possible that the retirees will be forced to the end of the line for reasons of sheer pragmatism. Normally, there is enough support for the entitlement programs among current workers (who are counting on the benefits, when it is their turn) to ensure they are protected politically, even though there are more workers than retirees. However, in the middle of a crisis, when the existing entitlement system is revealed to be a failure, the working population will likely be so skeptical of the system as to conclude that voting to sustain it will not in fact benefit them when it is their turn. Thus, I think the Boomers have a good chance of being screwed.

                    Comment


                    • #11
                      Re: Rent To Own

                      Originally posted by plinko View Post
                      Any younger itulipers on here try to confront their baby-boomer parents about the potential problems with social security benefits & pensions?
                      First, a nod to Ash's coments: there's a good chance the boomers will be screwed.

                      Personally, I think this is where the crisis is going to hit most of us the hardest: Boomers or not, the family members that are rendered poor will need some kind of bailout from within. My parents (prewar births) are of retirement age without any retirement plan. Five years ago, my siblings and I were concerned about their situation and confronted them to no avail.

                      Now, we're not just worried about them, but also their siblings (aunts and uncles) that had retirement plans and are fully retired.

                      There is no gold horde that can adequately insulate this crowd.

                      Comment


                      • #12
                        Re: Rent To Own

                        Originally posted by ASH View Post
                        I don't know about "confront". I think it will end badly for the Boomers, in general. The budgetary crisis is now: the present financial crisis, and our policy response to it, has moved up the date. I'm fairly certain that Gen-X and Y will have enough time after the present entitlement programs fall apart for a new, workable system to emerge -- and enough warning to prepare themselves. Unfortunately, failure of the entitlement system is going to occur right when the Boomers are retiring (partly because they are retiring), and there will be no time for them to prepare better, or for the system to right itself. Further, although the Boomers are a large age cohort, the number of retired will never be as large as the number of workers. Since the failure of the entitlement programs is going to occur in the midst of a larger economic and budgetary crisis, it is quite possible that the retirees will be forced to the end of the line for reasons of sheer pragmatism. Normally, there is enough support for the entitlement programs among current workers (who are counting on the benefits, when it is their turn) to ensure they are protected politically, even though there are more workers than retirees. However, in the middle of a crisis, when the existing entitlement system is revealed to be a failure, the working population will likely be so skeptical of the system as to conclude that voting to sustain it will not in fact benefit them when it is their turn. Thus, I think the Boomers have a good chance of being screwed.
                        I think demograpichly boomers and seniors turn out in large numbers. The politicians will pander to the greatest number of voters. That is one reason you can expect inflation over entitlement cuts. Foriegn bond holders don't get to vote.

                        Comment


                        • #13
                          Re: Rent To Own

                          Originally posted by ASH View Post
                          I don't know about "confront". I think it will end badly for the Boomers, in general. The budgetary crisis is now: the present financial crisis, and our policy response to it, has moved up the date. I'm fairly certain that Gen-X and Y will have enough time after the present entitlement programs fall apart for a new, workable system to emerge -- and enough warning to prepare themselves. Unfortunately, failure of the entitlement system is going to occur right when the Boomers are retiring (partly because they are retiring), and there will be no time for them to prepare better, or for the system to right itself. Further, although the Boomers are a large age cohort, the number of retired will never be as large as the number of workers. Since the failure of the entitlement programs is going to occur in the midst of a larger economic and budgetary crisis, it is quite possible that the retirees will be forced to the end of the line for reasons of sheer pragmatism. Normally, there is enough support for the entitlement programs among current workers (who are counting on the benefits, when it is their turn) to ensure they are protected politically, even though there are more workers than retirees. However, in the middle of a crisis, when the existing entitlement system is revealed to be a failure, the working population will likely be so skeptical of the system as to conclude that voting to sustain it will not in fact benefit them when it is their turn. Thus, I think the Boomers have a good chance of being screwed.
                          While I agree that Boomers in general are going to get screwed in this mess, especially as they try to retire, I am skeptical that those of us who follow will manage a better retirement. For one, the Boomers outnumber us, especially when it comes to voting demographics. They will vote to sustain for themselves whatever they can manage to wring out of social security etc., and why not? There will be nothing left for Gen-X. Eventually horrified by the dissolution of social security, elderly Boomers (and probably most of Gen-X) will then vote for some new retirement program for the future. Gen-Y or whatever you want to call the next generation may benefit from that, but I expect it will come too little too late for Gen-X.

                          My early Boomer parents will be almost entirely dependent on social security for retirement, and they have a mortgage that may outlive them. They continue to assure me that "we'll be ok" and that I won't need to help them, but I suspect otherwise. Unfortunately I don't think I can save enough money to "retire" all of us.

                          Originally posted by cjppjc View Post
                          I think demograpichly boomers and seniors turn out in large numbers. The politicians will pander to the greatest number of voters. That is one reason you can expect inflation over entitlement cuts. Foriegn bond holders don't get to vote.

                          Comment


                          • #14
                            Re: Rent To Own

                            for a population reference:

                            http://www.census.gov/population/pop...mic/AgeSex.pdf

                            it has a 2005 estimated pyramid chart.

                            Comment


                            • #15
                              Re: Rent To Own

                              Originally posted by cjppjc View Post
                              I think demograpichly boomers and seniors turn out in large numbers.
                              Originally posted by zoog View Post
                              For one, the Boomers outnumber us, especially when it comes to voting demographics.
                              I hear you guys. That's certainly how it has worked up until now. My thesis is that when the budget crisis becomes acute, more working-age voters will get out to the polls, and vote their immediate self-interest.

                              I could be wrong -- I thought the last election was going to be a Clinton vs. Giuliani contest, so obviously my acumen for political forecasting is low.

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