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The Housing Crash and Retirement Prospects

7/2/2008, 7:43 pm

This one’s not a pretty picture, but it’s very interesting reading.

“The Housing Crash and the Retirement Prospects of Late Baby Boomers” by Dean Baker and David Rosnick was released in just last month by the Center for Economic and Policy Research.

It’s a study of the retirement prospects of people between the ages of 45 and 54 under three alternative scenarios. The first is that real house prices fall no lower than the March 2008 level, the second scenario assumes the 2009 average will will 10% lower and the third assumes a 20% fall for the 2009 average.

You can read the full report online, but the stand out for me is that so many people may have planned to use their house as a source of funds for retirement. Interestingly, renters seem to come out ahead in this paper. The authors project renters in the same group in 2004 will have more wealth in 2009 than homeowners in all three of the scenarios!

The takeaway: buying one’s home is not about investing. Home buying is probably done best when one is actually buying a house in which to make a home.

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