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National Research Council (US) Steering Committee on the Challenges of Assessing the Impact of Severe Economic Recession on the Elderly; National Research Council (US) Committee on Population; National Academies (US) Division of Behavioral and Social Sciences and Education. Assessing the Impact of Severe Economic Recession on the Elderly: Summary of a Workshop. Washington (DC): National Academies Press (US); 2011.

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Assessing the Impact of Severe Economic Recession on the Elderly: Summary of a Workshop.

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HOUSING

It was the increase in the foreclosure rate in the 2006–2007 period that ultimately led to the collapse of the subprime mortgage market and the current economic downturn, and two presentations at the meeting therefore focused on aspects of housing. John Weicher observed that 2007 was the peak year for housing prices and the most recent year for the two major surveys relevant to this topic: the American Housing Survey and the Survey of Consumer Finances. As of 2007, approximately 80 percent of elderly households were homeowners, and roughly 55 percent owned their homes free and clear. About 25 percent had mortgages or home equity lines of credit, with very few having anything that looked like a subprime mortgage. In general, elderly households with mortgages have held them for a while5 and do not owe a lot on them.6

Home values have fallen by approximately 13 percent since 2007, with larger declines in the “sand states”—Arizona, California, Florida, and Nevada—in which a disproportionately large share of elderly owners live.7 The S&P 500, by comparison, fell by roughly 25 percent. Although some of the elderly are likely to be in trouble, especially in the sand states, elderly homeowners were on the whole less affected by the recession than other demographic groups.

Weicher indicated that this is fortunate, since home equity is a large share of elderly households’ net worth (as measured in the Survey of Consumer Finances). In 2007, the median home value for the elderly ($170,000) represented approximately three-quarters of their median household wealth ($225,000). Retirement accounts, owned by 45 percent of the elderly, are the next most common asset; in 2007, the median value among those with accounts was $55,000. The typical elderly homeowner, who has a house that is worth more than five times his or her income ($30,000), is “house poor” compared with the typical younger homeowner, whose home value ($200,000) is about three times his or her income ($60,000). This has led to a growth in reverse mortgages, which allow elderly owners to turn home equity into current income.

In his presentation, Joseph Tracy described the Federal Reserve Bank of New York (FRBNY) Credit Panel, a data set that can provide real-time information on the housing sector. The FRBNY recently entered into a partnership with the credit agency Equifax, in which Equifax draws a 5 percent random sample of households, pulls together all of their credit files, and updates the information on a quarterly basis. This allows households to be tracked through time and across geographic locations (something that is not possible with mortgage data); the data set will be refreshed so that it remains a random sample. Equifax also created 10 years of history that allow the events leading up to the current crisis to be tracked by the FRBNY Credit Panel.

One of the challenges of establishing loan-to-value ratios for housing has been knowing the combined loan-to-value ratio for people who have multiple liens on a home; the FRBNY Credit Panel allows these to be linked up and therefore provides a more complete picture than typical data sets on housing. The FRBNY is also attempting to integrate information about valuation because it has information on the debts on homes but not on the value of the house itself; it is working with First American and also using its other loan-level data in order to do so.

FRBNY Credit Panel data indicate that there is a sizeable gap between rates of official and effective homeownership after subtracting negative equity. Although mortgage debt was less of an issue for older people, those who did have mortgages experienced similar increases in 90-day delinquency rates. The FRBNY Credit Panel does not contain demographic information other than age; Home Mortgage Disclosure Act data, if they could be merged with the Equifax data, would broaden the demographic information available.

Several participants suggested that the age profile of bankruptcies could be interesting to look at. On one hand, older people may have more resources on which to draw; on the other hand, if they have already bought their homes, they may be less worried about how they would appear to future creditors if they were to default. A graph of credit ratings by age before and after the economic crisis might also be informative.

It was also suggested during the general discussion that the median U.S. household has held onto its housing and equity assets throughout the market boom and bust period and therefore suffered minimal losses in well-being; a small number of households even came out ahead because they sold their assets at the right time. The core of the problem consists of the losses experienced by the small number of households that bought and sold their assets at precisely the wrong time. There were probably not many older homeowners in that negative tail, although older people who do want to sell their homes (and move into a retirement home) may now find it difficult to do so at a preferred price. Older people also do not have the luxury of adjusting their retirement date and will not be able to make up their losses in housing wealth to the same extent as younger people. Moreover, given the role of the family as a potential provider of insurance against financial shocks, older people could be indirectly affected by the housing losses of their children.

Footnotes

5

In 2007, the median origination year for mortgages held by elderly households was 2001 (with 17 median years remaining on the mortgage). Weicher indicated that although this may seem fairly recent—and in a normal cycle it might be—the first 6 years of this decade were years with very large volumes of mortgages and very large volumes of home purchases. For younger households, the median origination year was 2003 (with 23 median years remaining on the mortgage); prices appreciated substantially in nearly all markets between 2001 and 2003.

6

According to Weicher, the median loan-to-value ratio for the elderly is 32 percent, and the median outstanding balance is $59,000—about half of what these figures are for younger households.

7

Since 2007, house prices were down 50 percent in Nevada, 40 percent in Arizona, 40 percent in Florida, and 35 percent in California.

Copyright © 2011, National Academy of Sciences.
Bookshelf ID: NBK56634

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