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The Wealth of the Baby Boom Cohorts After the Collapse of the Housing Bubble

The Wealth of the Baby Boom Cohorts After the Collapse of the Housing Bubble

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This report builds upon previous CEPR projections to more accurately describe the current wealth prospects for the baby boom cohorts aged 45 to 54 and 55 to 64. The severity of the housing market meltdown, coupled with the recent collapse of the stock market, has had a severe negative impact on the wealth of these cohorts. Using data from the 2004 Survey of Consumer Finance and the November 2008 Case-Shiller 20 City Price Index, the authors create three possible scenarios for baby boomer wealth and find these households will enter retirement with little wealth beyond Social Security. For each cohort in 2004 and 2009, the paper analyzes net worth, financial assets, equity in real estate, percent of households in each cohort who will need cash to close on their primary residence, net worth of homeowners, net worth of non-homeowners, and the percent of homeowners who would need cash to close on their primary residence.
This report builds upon previous CEPR projections to more accurately describe the current wealth prospects for the baby boom cohorts aged 45 to 54 and 55 to 64. The severity of the housing market meltdown, coupled with the recent collapse of the stock market, has had a severe negative impact on the wealth of these cohorts. Using data from the 2004 Survey of Consumer Finance and the November 2008 Case-Shiller 20 City Price Index, the authors create three possible scenarios for baby boomer wealth and find these households will enter retirement with little wealth beyond Social Security. For each cohort in 2004 and 2009, the paper analyzes net worth, financial assets, equity in real estate, percent of households in each cohort who will need cash to close on their primary residence, net worth of homeowners, net worth of non-homeowners, and the percent of homeowners who would need cash to close on their primary residence.

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Published by: Center for Economic and Policy Research on Feb 25, 2009
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The Wealth of the Baby BoomCohorts After the Collapseof the Housing Bubble
David Rosnick and Dean Baker
February 2009
Center for Economic and Policy Research
1611 Connecticut Avenue, NW, Suite 400Washington, D.C. 20009202-293-5380www.cepr.net
 
The Wealth of the Baby Boom Cohorts After the Collapse of the Housing Bubble
i
Contents
Executive Summary...........................................................................................................................................1
 
Introduction........................................................................................................................................................3
 
 Wealth for Households Headed by People Between Ages 45-54: 2004 and 2009..................................4
 
 Wealth for Households Headed by People Between Ages 55-64: 2004 and 2009................................13
 
Implications for Policy....................................................................................................................................21
 
 Appendix: Real Estate Equity Rates............................................................................................................23
 
 About the Authors
David Rosnick is an economist at the Center for Economic and Policy Research. Dean Baker is aneconomist and co-director of the Center for Economic and Policy Research.
 Acknowledgements
 The authors would like to thank Kris Warner and Rivka Deutsch, who provided help with theediting and layout of this paper.
 
The Wealth of the Baby Boom Cohorts After the Collapse of the Housing Bubble
1
Executive Summary
 This paper makes projections of wealth for 2009 for the baby boom cohorts (ages 45 to 54 and ages55-64) using data from the 2004 Survey of Consumer Finance. It updates an earlier paper on thistopic from June of 2008 using projections for housing and stock values that are more plausible giventhe 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 morethan 45 percent between 2004 and 2009, from $150,500 in 2004 to just $82,200 in 2009 (all amountsare 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 boomerhousehold took all of the wealth they had accumulated during their lifetime, they would still owemore 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 personbetween 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 theirhome. According to our calculations, nearly 30 percent of households headed by someone betweenthe ages of 45 to 54 will need to bring money to their closing (to cover their mortgage andtransactions 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 theirhome. These calculations imply that, as a result of the collapse of the housing bubble, millions of middleclass homeowners still have little or no equity even after they have been homeowners for severaldecades. These households will be in the same situation as first-time homebuyers, forced to struggleto 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 moresuitable for their retirement.Finally, the projections show that for both age groups, the renters within each wealth quintile in2004 will have more wealth in 2009 than homeowners in all three scenarios. In the second and thirdscenarios, renters will have dramatically more wealth in 2009 than homeowners who started in thesame 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 tothe destruction of much or all of their wealth.
1
These calculations exclude wealth in defined benefit pensions.

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