Housing bust worse for younger homeowners
If you bought a home in the Baltimore region after 2003, chances are it's not adding anything to your net worth. It's much more likely subtracting.
Multiply that across the country, and you have one of the explanations for a recent Pew Research Center finding that while older Americans were doing much better financially in 2009 than their counterparts a generation ago, younger Americans were doing much worse. The older you are, the greater your chance of having bought a home well before the housing bubble started, as NPR noted when it reported on the Pew study.
The median net worth of households headed by someone at least 65 years old was about $170,000 in 2009, 42 percent more than seniors in 1984, Pew says. In under-35 households, median net worth was a slim $3,662, 68 percent less than what their same-age counterparts were worth in 1984.
"People generally accumulate wealth as they age, so it is not unusual to find large age-based gaps on this measure. However, the current gap is unprecedented," Pew notes. "In 1984, the age-based wealth gap had been 10:1. By 2009, it had ballooned to 47:1."
Though the rough job and housing markets have helped turn that gap into a chasm, they're not the only factors.
"These age-based gaps widened significantly during the sour economy of recent years, but all key trends are several decades old, indicating that they are also linked to long-term demographic, social and economic changes that have affected different age groups in different ways," Pew says. "These changes include structural changes in the labor and housing markets; delayed marriage; delayed retirement; and the changing racial and ethnic composition of the population."
But the housing market has definitely packed a harder wallop on younger, newer buyers.
"Most of today's older homeowners got into the housing market long ago, at 'pre-bubble' prices — half purchased their present homes before 1986, according to the 2009 American Housing Survey," Pew says. "Along with everyone else, they've been hurt by the housing market collapse of recent years, but over the long haul, most have seen their home equity rise. Moreover, most older homeowners (65%) do not have a mortgage to pay. For young adults who are in the beginning stages of wealth accumulation, there has been no such luck, at least so far. Among those who are homeowners, many bought as the bubble was inflating. When the bubble burst, many were left with negative equity in their homes."
Here's a snapshot of the housing market in the Baltimore region since 1997, as far back as Metropolitan Regional Information Systems has tracked the area:
The figures are for the month of October. Last month's typical sale price for the metro area was $219,000, just under the $221,000 paid in October 2004 and significantly less than the $268,000 paid in October 2007. (You can see why negative equity is common.)
I wish we had comparable numbers for earlier years, but alas, no. Still, the Census Bureau did do a decades-long comparison of home values in Maryland around the time of the 2000 Census, and it gives you an idea of the advantage an earlier purchaser would have over a circa-2005 buyer in terms of net worth:
Median sales price in Maryland as of October: $222,000.
Some long-term homeowners ate up the advantage they'd built up by doing cash-out refinances during the go-go days, of course. But you can see why a 70-year-old who bought a home in the early '70s might be worth something approaching $200,000, while a 30-year-old who bought four years ago could easily be worth negative dollars.
Where do things stand for you?