Baby boomers came to look at housing as an investment that would provide for their retirement. Owning a primary residence is a solid part of a retirement financial plan, but when house prices took off during the bubble, baby boomers responded by spending more money, retiring early, and slowing their saving and investment in other areas. As a result, many baby boomers were completely unprepared for retirement when house prices crashed. In response, Ben Bernanke lowered interest rates to zero to attempt to reflate the asset bubbles in stocks, bonds and real estate to restore the illusory wealth of the baby boomers.
I imagine the boomers are quite grateful for Uncle Ben?s help, but as with any market manipulation, there is what?s seen and what?s not seen. The unseen consequence is that today?s buyers are forced to pay more for houses, and it isn?t likely they will see the same inflation of asset values enjoyed by their parents. In other words, beyond the social security taxes, today?s workers and homebuyers are being ask to fund the retirements of baby boomers.
By Robert Dietz ? January 22, 2013
While 2012 marked a turning point for housing in terms of prices and new construction, the scars left by the Great Recession and housing crisis are still apparent today.
One of the most glaring impacts is homeownership rates across the country, which have fallen significantly as a result of the housing crisis. According to the Census Bureau, the homeownership rate stood at 69.2 percent at the end of 2004. By the third quarter of 2012, it had fallen to 65.6 percent.
The home ownership rate will still fall further. The backlog of foreclosures, particularly in the judicial foreclosure states will see to that.
The picture is even more grim for younger households who make up most of the important class of first-time homebuyers. Census data reveal that the biggest declines in homeownership were among households headed by those under 35 years of age, with rates plunging from their highest level of 43.6 percent in mid-2004 to 36.3 percent as of the third quarter 2012. Households aged 35 to 44 experienced a decline in homeownership from 70.1 percent at the beginning of 2005 to 61.8 percent as of the third quarter 2012.
(Source: Census)
The reasons for the decline in homeownership among the younger demographic are twofold. First, foreclosures caused some of these homeowners to become renters or cease to be households entirely and move in with family or friends. Second, tight lending requirements and weak labor markets made homeownership unattainable for many younger households, reducing the flow of potential new homeowners.
Those conditions are not going to change any time soon. The economy continues to be weak due to excessive debt loads and unresolved foreclosures. The short sales and foreclosures will continue, and the credit scores of those failed loanowners will weaken the market.
Many hope that rebound buyers will come back to the market in large numbers and save the housing market. We know from recent studies that only about a third of those who go through foreclosure ever buy again. Perhaps it will be different this time, right?
A similar story has played out when it comes to household wealth. According to preliminary data from the Federal Reserve?s 2010 Survey of Consumer Finances, from 2007 to 2010, overall household net worth declined nearly 40 percent, largely due to steep housing price declines. Households aged 35 to 44 experienced the largest drop with a stunning 54 percent median decline in net worth. The value of primary residences also fell the greatest in percentage terms for the youngest homeowners: Those 35 and under saw a 23 percent median decline, followed by 21 percent for those aged 35 to 44 and 65 to 74.
What do these facts suggest about future policy debates? Declining homeownership rates for younger households have far-reaching ripple effects including delays in marriage, having children, and wealth accumulation. Fertility rates in the U.S. have fallen significantly as a result of the Great Recession, with the largest declines associated with states with more serious housing challenges.
The big policy debates will be between baby boomers who want benefits from social security and medicare from a workforce that?s much smaller in size and underemployed.
Second, changes to rules that increase the cost of buying a home with debt will have greater impacts on younger households because such individuals are more dependent on a mortgage to purchase a home. Consider the mortgage interest deduction, the benefits of which are strongly correlated to age according to data from the Internal Revenue Service. Homeowners 55 and younger claim 71 percent of the total MID deduction amounts on itemized tax returns. In terms of the average deduction, the highest MID amount ($13,154) is for those aged 35 to 44 with progressively smaller deduction totals as homeowners age.
All these data emphasize that housing policy decisions will have long-term impacts on economic and social outcomes. And these decisions should reflect fairness and prudence across income and wealth distributions but must be generationally fair as well.
Perhaps they should reflect fairness and prudence, but the AARP is a powerful lobby, and when push comes to shove, the baby boomers will likely get what they want. Those of us who follow will likely pay the price, and face an uncertain future. Will those benefits be there when we retire? Most don?t think so.
A couple hundred thousand and nearly three years squatting
Sometimes when I see how richly rewarded people were for their bad behavior, I get a small pang of jealousy, and I wonder if the pernicious effect of moral hazard isn?t getting to me too. It will take discipline not to Ponzi borrow and steal from the US taxpayer next time around. Most won?t exercise any discipline, and with the free money handed out last time, even the more prudent borrowers may participate in the next one. Why not? It was free money followed by free housing. Who wouldn?t want that?
The former owner of today?s featured property overpaid back in 2003, but she was bailed out by rising prices in the housing bubble like everyone else was. She was given about $200,000 in free money, and when she imploded in late 2008, she was allowed to squat until early 2011. Not a bad deal for her, particularly considering what a nice place she got to squat in.
The bank held this property off the market for two years hoping for better pricing. While they held the property, values mostly went down, but with last year?s rebound, they are hoping to cash in.
Wouldn't you be embarrassed to overpay by $100,000? Only fools buy houses without knowing neighborhood values. Don't be a fool. Don't suffer the pain of an underwater mortgage. The surest way to lose your house is to overpay for it. Our reports identify overvalued and undervalued neighborhoods. Use it to broaden or narrow your search area. Savvy buyers work with us to find bargains. We've saved thousands from financial ruin. Let us save you too. If you want peace of mind while shopping for your next home, sign up for our monthly market newsletter.
29092 Country Hills Road, San Juan Capistrano, CA 92675 (MLS # OC13016590)
(all data current as of 2/16/2013)| Price | $850,000 |
|---|---|
| Beds | 4 |
| Baths | 2 full, 1 half |
| Home size | 6,000 sq ft |
| Lot Size | 16,800 sq ft |
| Days on Market | 11 |
Exceptional value!! Sprawling Country Hills home sits on nearly 1/3 acre of land. Flowing floor plan is perfect for entertaining with an enormous living room, soaring ceilings, dual staircase, home office and huge backyard with private pool/spa, built-in BBQ & large back area for a sports court. Oversized cooks kitchen with professional oversized grade appliances including a built-in refrigerator, authentic built-in butchers block and wine cooler. A must see!!
Property Type(s): Single Family, Residential
| Last Updated | 2/5/2013 | Tract | Country Hills (cs) (Country Hills (CS)) |
|---|---|---|---|
| Year Built | 1981 | Community | San Juan North |
| Garage Spaces | 2.0 | County | Orange |
| Total Parking | 4 |
Listing information deemed reliable but not guaranteed. Read full disclaimer.
Listed with The Immel Team DRE# 00545198, Prudential Calif Realty
(view all details for MLS #OC13016590)
Proprietary OC Housing News home purchase analysis
29092 COUNTRY HILLS Rd San Juan Capistrano, CA 92675
$850,000 ??.. Asking Price
$1,181,500 ???. Purchase Price
12/11/2003 ???. Purchase Date
($331,500) ???. Gross Gain (Loss)
($68,000) ???? Commissions and Costs at 8%
============================================
($399,500) ???. Net Gain (Loss)
============================================
-28.1% ???. Gross Percent Change
-33.8% ???. Net Percent Change
-3.5% ???? Annual Appreciation
Cost of Home Ownership
??????????????????????????
$850,000 ??.. Asking Price
$170,000 ???? 20% Down Conventional
3.59% ????. Mortgage Interest Rate
30 ?????? Number of Years
$680,000 ??.. Mortgage
$156,268 ???. Income Requirement
$3,088 ???? Monthly Mortgage Payment
$737 ???? Property Tax at 1.04%
$0 ???? Mello Roos & Special Taxes
$213 ???? Homeowners Insurance at 0.3%
$0 ???? Private Mortgage Insurance
$0 ???? Homeowners Association Fees
============================================
$4,037 ???. Monthly Cash Outlays
($693) ???. Tax Savings
($1,053) ???. Equity Hidden in Payment
$197 ????.. Lost Income to Down Payment
$233 ????.. Maintenance and Replacement Reserves
============================================
$2,721 ???. Monthly Cost of Ownership
Cash Acquisition Demands
??????????????????????????
$10,000 ???? Furnishing and Move In at 1% + $1,500
$10,000 ???? Closing Costs at 1% + $1,500
$6,800 ???? Interest Points
$170,000 ???? Down Payment
============================================
$196,800 ???. Total Cash Costs
$41,700 ???. Emergency Cash Reserves
============================================
$238,500 ???. Total Savings Needed
The property above is available for sale on the MLS.
Contact us for a comparative market analysis, a cost of ownership analysis, or information on how you can make an offer today!
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Source: http://ochousingnews.com/news/saving-the-banks-and-baby-boomers-at-the-expense-of-future-buyers
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