Study: Impact of housing bubble on retirement
By The Associated Press 09.09.08, 2:54 PM ET
What did the rise and fall of home values do to retirement security for people in their 50s and early 60s?
The Center for Retirement Research at Boston College studied the issue and found that homeowners tended to act on their short-term interests. Here are some of the key findings of their report, released this month:
_ Many households reacted to the gain in housing prices by taking money out, thus increasing their debt. The center estimates that households extracted about $1.2 trillion of their home equity during the boom from 2001-06.
_ Total debt rose to 120 percent of disposable personal income in 2007 from about 80 percent in the early 1990s, according to government data.
_ With most of their family responsibilities out of the way, households headed by homeowners over age 50 were more likely to take out home equity. All told, homeowners aged 50-62 took out an estimated $380 billion from their primary residences and posted expenses of $149 billion, based on government data from the Federal Reserve System and the Case-Shiller Home Price Index.
_ Homeowners with children were more likely to tap into their home equity, possibly to pay education and other expenses.
_ Homeowners said they spent 10.5 percent of what they took out from their primary homes on expenses, including personal spending and repayment of credit-card debt; 23.5 percent to pay off past debts, 32.2 percent for home improvement and 33.8 percent for investment in the stock market, real estate or business.
_ For the typical homeowner nearing retirement (aged 50-62 in 2004), the gains in housing equity were nearly offset by additional spending. Their household net worth declined by an estimated $6,900 or 14 percent.