Gen X Takes The Housing Hit; Boomers Only Grazed

Nov 13, 2011
Originally published on May 18, 2012 10:11 am

At this time five years ago, the white-hot U.S. housing market was starting to cool. Before long, it would slip into a deep freeze.

The thaw still hasn't come. The latest statistics show residential real estate prices are continuing to drop — a trend that could have a long-lasting impact on the net wealth of younger homeowners who bought property during the housing bubble.

The problem is that today's prices — already down by about a third from the peak -– are still dropping. They fell in nearly three quarters of metropolitan areas during July, August and September, according to the latest report from the National Association of Realtors.

The national median price of a previously occupied house declined 4.7 percent just for the three-month period, the trade group reported.

"Home sales need to recover first, only then can prices stabilize," Lawrence Yun, the Realtors' chief economist, said in a statement.

But few economists expect home sales to recover any time soon, given the continuing foreclosure crisis. A new report from RealtyTrac Inc., a foreclosure listing firm, shows foreclosures are shooting up again.

There had been a brief lull a year ago, but only because lenders needed time to straighten out the flood of foreclosure paperwork. Now that backlog has been reduced, so 77,733 properties received an initial default notice last month, up 10 percent from September, RealtyTrac said.

The dismal foreclosure and pricing outlook is depressing both construction and sales of existing homes.

"This is shaping out to be the worst year on record for the single-family housing market," IHS Global Insight U.S. economist Patrick Newport wrote in an assessment of the housing market.

Victims Of Bad Timing

For millions of younger Americans, this long price slump will have a lasting financial impact. Economists are finding the slump is disproportionately hurting the so-called Generation X — people born between 1965 and 1982. Here's why they are being hurt more than Baby Boomers, born between 1946 and 1964:

Consider the financial fate of a boomer who was 30 years old in 1991. If he purchased a typical house that year, the median price was about $100,000. Today, the median selling price is around $170,000.

Today's price is well below what it would have been five years ago. But still, even after adjusting for inflation, a person who sells a house purchased 20 years ago will make a profit today. And that profit can help make for a much more comfortable retirement.

The story is quite different for a Gen-Xer who was 30 years old in 2006. If she bought the typical house that year during the housing bubble, she paid about $250,000.

Today, that home owner would be 35 years old, and her property's value would have declined by about a third, dimming her prospects for an affluent retirement.

Thus, The Generation Gap Grows

Last week, the Pew Research Center released a study showing the profound impact of these dynamics. It showed that older Americans are now a wealthier demographic group, compared with people who were in that group in the 1980s.

But in contrast, households headed by people 35 or younger have gotten poorer. The difference in wealth largely reflects the divergence in home equity.

The Pew study concluded: "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. In 1984, the age-based wealth gap had been 10:1. By 2009, it had ballooned to 47:1."

The timing of a home purchase was a key difference, the study found. "Most older homeowners purchased their homes long ago – at 'pre-bubble' prices," the report said. As a result, those older people "are still ahead over the long haul."

Unfortunately for them, many Gen-Xers "purchased their homes at "bubble" prices, and –- with the bursting of the bubble -– now have less equity in their homes than when they purchased them," the study concluded.

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This is WEEKEND EDITION from NPR News. I'm Audie Cornish.

At this time about five years ago, the white-hot housing market was just starting to cool. Before long, it would slip into a deep freeze. We haven't seen a thaw yet, which is bad news for today's home sellers. But even worse, the slump could permanently reduce the net wealth of an entire generation.

Here to explain is NPR senior business editor Marilyn Geewax. Marilyn, welcome.


CORNISH: First, give us an update. What is the status of the housing market at this point?

GEEWAX: This seems almost hard to believe, but residential real estate is still heading down. And, you know, prices are down about a third since 2006, and they are continuing to drop in most cities. The National Association of Realtors - they put out a report recently that said this summer, prices fell almost 5 percent compared with last year.

This is shaping up to be, for the single-family housing market, the worst year on record. And, you know, we've got records going back a half a century.

CORNISH: And now we're heading into winter, which really isn't the - kind of - high selling season. But is there any end in sight?

GEEWAX: Not really. All of the latest reports are showing that home foreclosures are shooting up again. You know, we saw a brief lull last year because the banks had to straighten out all of that paperwork related to foreclosures. But they've whittled down that pile of paperwork and now, they're throwing delinquent borrowers out of their homes again.

CORNISH: So how is this slump essentially reshaping people's lives?

GEEWAX: Well, it's kind of changing the narrative for a lot of people's lives. Many people grew up hoping to own their own home. They wanted to see their kids grow up throwing a football around in their own backyard. But instead, they may be pushing buttons in an apartment building because they can never own.

But for a lot of younger people, this is more than just a phase in life. It's going to continue all the way through their lives into their old age.

CORNISH: Because they've lost the opportunity to build wealth, or...

GEEWAX: Yes, exactly. If you think about how retirement is going to unfold for baby boomers compared with gen-Xers - the generation that came behind them - you can see how this is a problem. If you were a boomer who bought a typical house in 1991, you paid the typical price of $100,000. So if you sell the house today, the typical price is $170,000. Even when you take into account inflation, you are still going to come out ahead if you're a baby boomer. But it's very different for the gen-Xer.

CORNISH: And that is bad news for me, frankly.


CORNISH: So give me the lowdown on what it means for my generation.

GEEWAX: Well, you know, say you were 30 years old in 2006. If you bought the typical house then, it was the peak of the bubble; you paid about $250,000. Now, you're in your mid-30s and your house has dropped in value by about a third. You're not building wealth; you're actually backsliding.

CORNISH: How widespread is this?

GEEWAX: It's a problem that's really showing up in the statistics. The Pew Research Center released a study this past week, and it showed that older Americans have actually become a wealthier demographic group, compared with older people back in the 1980s. But at the same time, younger households - those with the head of household 35 or younger - they've actually gotten poorer.

And the big difference has been this home equity thing. If you were a person who bought your house 20,30 years ago, you're still doing OK. And if you're a younger person who bought your house in the last five, eight years, you're underwater and you're losing ground.

CORNISH: What does all of this mean for the economy in the long term?

GEEWAX: It's definitely not good. You want people to be heading towards retirement with as much wealth as possible. But this younger generation, they're off to such a tough start. They have had a bad job market, depressed wages; they've had these falling home prices. So, it's bad.

But it's fair to point out that we can't predict the future accurately. We live in an age of technological wonders. And there may be some innovations coming that perk up the economy. But if you're looking to your house to be the source of your wealth in retirement, that is very unlikely for the younger generation.

CORNISH: NPR senior business editor Marilyn Geewax. Marilyn, thanks so much.

GEEWAX: Oh, you're welcome Transcript provided by NPR, Copyright NPR.