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The Wealth of Older Americans and the Sub-Prime Debacle The Wealth of Older Americans and the Sub-Prime Debacle

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  • Barry Bosworth
  • Rosanna Smart

Abstract

This study explores the consequences of the housing price bubble and its collapse for the wealth of older households. We utilize micro survey data to follow the rise in home values to 2007, observing which households enjoyed home price appreciation and how they responded in terms of equity withdrawal. We then use the SCF survey data on wealth holdings from 2007 in combination with national price indexes to simulate the magnitude and distribution of wealth loss from the 2008-2009 financial crisis. The collapse of the housing market triggered a broad decline of asset prices that greatly reduced the wealth of all households. While older households mitigated their real estate and equity losses with relatively stable fixed-value assets and pension programs, no demographic group was left unscathed. Prior to the financial crisis, our study and others had concluded that the current baby-boom cohort of near retirees were surprisingly well-prepared for retirement compared with similarly aged households over the past quarter century. Unless there is a strong recovery of asset values in the next few years, that favorable assessment is no longer true.

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Bibliographic Info

Paper provided by Center for Retirement Research in its series Working Papers, Center for Retirement Research at Boston College with number wp2009-21.

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Length: 37 pages
Date of creation: Nov 2009
Date of revision: Nov 2009
Handle: RePEc:crr:crrwps:wp2009-21

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  1. Alan Greenspan & James Kennedy, 2005. "Estimates of home mortgage originations, repayments, and debt on one-to-four-family residences," Finance and Economics Discussion Series 2005-41, Board of Governors of the Federal Reserve System (U.S.).
  2. David Love & Paul A. Smith & Lucy C. McNair, 2008. "A New Look at the Wealth Adequacy of Older U.S. Households," Department of Economics Working Papers 2008-12, Department of Economics, Williams College.
  3. Todd Sinai & Nicholas S. Souleles, 2005. "Owner-Occupied Housing as a Hedge Against Rent Risk," The Quarterly Journal of Economics, MIT Press, vol. 120(2), pages 763-789, May.
  4. Carroll, Christopher D. & Otsuka, Misuzu & Slacalek, Jirka, 2006. "How large is the housing wealth effect? A new approach," CFS Working Paper Series 2006/35, Center for Financial Studies (CFS).
  5. Charles Calomiris & Stanley D. Longhofer & William Miles, 2009. "The (Mythical?) Housing Wealth Effect," NBER Working Papers 15075, National Bureau of Economic Research, Inc.
  6. Alicia H. Munnell & Mauricio Soto, 2008. "The Housing Bubble and Retirement Security," Working Papers, Center for Retirement Research at Boston College wp2008-13, Center for Retirement Research, revised Aug 2008.
  7. Sumit Agarwal & John C. Driscoll & David Laibson, 2007. "Optimal Mortgage Refinancing: A Closed Form Solution," NBER Working Papers 13487, National Bureau of Economic Research, Inc.
  8. Jordan Rappaport, 2007. "A guide to aggregate house price measures," Economic Review, Federal Reserve Bank of Kansas City, issue Q II, pages 41-71.
  9. Dean Baker & David Rosnick, 2009. "The Wealth of the Baby Boom Cohorts After the Collapse of the Housing Bubble," CEPR Reports and Issue Briefs 2009-07, Center for Economic and Policy Research (CEPR).
  10. Ortalo-Magne, Francois & Rady, Sven, 2002. "Tenure choice and the riskiness of non-housing consumption," Journal of Housing Economics, Elsevier, vol. 11(3), pages 266-279, September.
  11. Alicia H. Munnell & Mauricio Soto, 2006. "What Replacement Rates Do Households Actually Experience In Retirement?," Working Papers, Center for Retirement Research at Boston College wp2005-10, Center for Retirement Research.
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