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:
2000: $146,000
1990: $116,500
1980: $58,300
1970: $18,700
1960: $11,900
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?
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Comments
I think the disparity between the older demographic and the under 35 crowd (who I interact with regularly in a professional environment - meaning those who would be in the best position to be a homeowner) in net worth is due more to the following than the housing bust:
1. college related debt;
2. purchase of the latest and greatest electronic gadgets;
3. need for something better than an entry level car;
4. expensive threads;
5. excessive post-college partying;
6. inability to defer gratification.
Posted by: An Observer | December 1, 2011 10:04 AM
I bought my house in 2005, when I was in my late 20's. I have a lot of negative equity. I live in Hamilton Hills and a lot of my neighbors are in a very similar situation. I don't think this is, necessarily, a bad thing. We were smart, we chose mortgages that we can afford. We're lucky and have jobs that allow us to pay our mortgages. Many of us bought our houses with the idea that we would quickly build equity and move to other neighborhoods. This is how many of my neighbors are, we can't move, but we can afford to stay. This, I believe, has built a better sense of community on my block and in the neighborhood as a whole. Just look at the number of businesses that opened on Harford Rd. since the economy sunk. I think in a lot of ways, the negative equity has made my neighborhood stronger. I'm really glad that I haven't been able to move to another neighborhood, because I've grown to really love this one.
Posted by: Dan | December 1, 2011 10:24 AM
That's a really interesting observation, Dan -- thanks for sharing your experience. (Now you've got me wanting to do a story about your block, so shoot me an email if that interests you.)
An Observer, college-related debt alone can really add up, not to mention credit-card debt.
Posted by: Jamie Smith Hopkins | December 1, 2011 10:30 AM
Those of us in our early 30s have been hit really hard in housing. We came of age to buy homes at the top of the market. My wife and I were responsible and didn't over buy insofar as our mortgage is quite manageable for our income. But at 28, we didn't have 20% to put down (who does at that age without family help?). Our house in the city that we purchased in 2007 is now worth 30-40% less than what we paid for it . . . and prices keep falling. I expect it will take another 15 years for our house to be worth what we paid for it - and that may be optimistic. My parents were able to trade-up houses due to steady appreciation. That will not happen for us. If I want to move I'd need to empty out my retirement savings or become a landlord . . . neither is an appealing option. But it could be worse. At least we're happy where we live and can pay our mortgage each month.
Posted by: 2007 Home Buyer | December 1, 2011 10:34 AM
@ An Observer
I would assume you're political leaning is right and you're playing up the whole personal accountability thing. Nice. Sike.
The problem with people of your ill is that you love to completely ignore structural factors in your view and prize personal accountability over everything.
I won't even address the stereotype you put forward about too much partying.
But ever something as stupid as saying young people need every new gadget - newsflash, gadgets and trends aren't new. Neither are cars. Earlier generations like records, tapes, and cd's as much as the current like MP3's / i-tunes. Earlier generations liked drive throughs and the like. All young people are typically going to consume what they can thats popular. This has nothing to do with the housing bubble.
The housing bubble has a lot more to do with policy by the Fed, lending policies of banks, the combinations of normal bankign with investment banking, etc. These are structural factos buddy.
And some young people in bad mortagaes are paying the price. Luckily, I'm not because I never bought a house.
Posted by: Dave MacMickey | December 1, 2011 10:58 AM
I don't think "Observer"'s observation is radically unfair. Buying on credit is much easier than it was for the previous generation, and a lot of people who shouldn't do it. Of four kids in my family, all of whom now "own," I am the only one who doesn't have a lot of debt.
But this tendency is not limited to people under 35 (my age, by the way), either.
I bought as soon as I could, and am glad I did it---because it was in 1999. And I never took any money out in refinancing.
Posted by: JFCanton | December 1, 2011 6:41 PM
Regarding Dan's ode to being trapped with your neighbors,
You might have a good time if you were trapped in an elevator or on a desert island with the right people, but that doesn't mean being trapped in an elevator or on a desert island is desirable.
Nice long history of prices. Notice 1960, it was only about twice median household income then. Even after some froth blow-off, it's still a hair over 4 times median income today. Of course I'm comparing US median income to Bmore region median home price. Anyone want me to compare Bmore median income, please find me some Bmore median income from 1960.
The nominal price of something is of no concern to the average worker, nor is his nominal wage. It is the relation between prices and wages that is of concern. Every single program that is designed to prop up housing is making the average worker poorer in real terms.
Posted by: Captain Obvious | December 2, 2011 12:35 AM
Why is the whole underwater dilemma void of any mention of applying extra money towards the principal? The media, government, whiners, etc seem to treat it as a taboo subject. The truth is anyone can do a biweekly pay plan on their mortgage and turn a 30 year into a 21 year loan simply by this painless plan. If that little bit extra crashes your financial pyramid then, you were doomed to fail anyway-was just a matter of time. Folks treat being upside-down like its some new phenomenon that magically appeared from the housing bubble. Truth is negative equity has always existed. There have always been folks that couldn’t sell there home. Why should we be anymore empathetic now than we were then? Cant sell your home to take a new job? So what, someone else gets the job. That’s life. Going thru a divorce? Well your life is miserable anyway what does it matter? Deal with it like everyone before you. Need a bigger home because of a growing family? Oh boo freaking hoo. Look at previous generations in your oen family for cripes sake. My folks lived in a 1400 sq ft home with a family of 11. Captain hits it on the bullseye with regard to gov't propping up housing even if you are on the wrong end of his logic. How would you like it if the govt interfered with your car payment and kept car values higher than they should be? Or your cell phone bill? Or your cable TV bill (oh wait - bad example they already do that-monopoly). I am sorry if your are rooting for the punch bowl to get spiked again to rescue you from your financial mess but, hoping some greater fool will fall victim to govt market manipulation is not going to happen. Enough with the make believe injustice of the robosigning controversy. You either paid your mortgage or you didn’t.
Posted by: elweedz | December 2, 2011 7:27 PM
Like Warren Buffett said - Americans better get over buying the house of their dreams and buy the house they can afford.
Posted by: xnay | December 3, 2011 4:21 AM