22 October 2008

Housing Boom, Housing Bust, and the Boomers

Dated September 2008, a paper published by the Center for Retirement Research at Boston College examines "The Housing Bubble and Retirement Security." The general conclusion for "older households" is that about a third of them will suffer from the housing bubble through less secure retirements.

The authors tracked the decisions by homeowners (across all age groups) during the housing boom years (2001-2006), and found that close to 40% had some kind of "mortgage activity," meaning refinancing or extracting home equity. Among those with activity, about a third spent the money on home improvements, about a third repaid other debts or made new purchases, and about a third made an investment in the stock market or real estate or a business.

Based on age in 2004, the age group 50 - 62 saw the greatest housing gains between 2001 and 2006. This age group also led in extracting home equity and then led in consuming (paying other debts or making new purchases). At least according to the formula in this paper, the near-retirement group who extracted home equity have lower net worth after the housing bubble.

The paper (which opens as a PDF file) includes easy-to-understand charts that illustrate the impact of the housing bust on age groups. It also explains the predictable human response to a housing boom: housing gains promote spending.

© 2008 Mary Bold, PhD, CFLE. The content of this blog or related web sites created by Mary Bold (www.marybold.com, www.boldproductions.com, College Intern Blog) is not under any circumstances to be regarded as professional, legal, financial, or medical advice. Or education advice. Or marital advice. Or even a tip.

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