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Danielle DiMartino: Why we're at risk in a housing chill

Danielle DiMartino: Why we're at risk in a housing chill
08:16 AM CST on Thursday, March 2, 2006

08:16 AM CST on Thursday, March 2, 2006

The fruits of the housing boom have not benefited all alike.

The Federal Reserve's survey of consumer finances for 2001-04 illustrates how divided the economy is between the haves and have-nots – and how vulnerable we are to a cooling housing market.

The wealthiest 10 percent of Americans experienced a 6.5 percent rise in net worth; the bottom one-fourth of earners actually lost 1.5 percent of their net worth.

As Merrill Lynch aptly put it, "The Fed survey shows that this tide did not lift all boats."

As for paychecks, median income across all strata rose by a measly 1.6 percent after inflation, a sharp slowdown from about 10 percent in the prior period surveyed, 1998 to 2001.

Not surprisingly, debt played an integral role in the deep slide.

Mortgage debt

After falling for years, mortgage and other debt as a percentage of total family assets rose to 15 percent in 2004 from 12 percent.

Moreover, fewer saved in the latest period. The Fed survey found 56 percent squirreling away acorns for a rainy day, down from 59 percent three years ago.

Wednesday's report on the savings rate showed that it remains in negative territory, where it's been for seven of the last eight months.

Other data confirm that debt's stress on households is rising.

Moody's Investors Service reported Tuesday that for the first time in three years, auto loan delinquencies have started to rise.

More telling is that serious delinquencies in the home equity sector are up 32 percent over the last year.

Maybe squeezing into that home with a piggyback loan and buying a second SUV despite being upside down on the trade-in were not good ideas after all.

Poor judgment

Such poor judgment calls are common among 35- to 44-year-olds, who experienced the greatest decline in net worth.

Those between 55 and 64 saw the most dramatic increase in net worth. We're talking about the people who were already in a home when the boom began and have counted their winnings in the form of fat capital gains.

Which brings us to a recent Census Bureau study. In the last four years, the age group that's experienced the most pronounced decline in homeownership rates was those between the ages of – you guessed it – 55 and 64.

Could it be that the notion that retirees will keep their homes is fundamentally flawed? (If so, it renders fatally flawed the theory that baby boomers will retain two residences in retirement.)

In sum, the wealthiest of Americans are net sellers of homes and have the most wiggle room on their balance sheets.

The most-stretched households have the least in the way of give.

And those who are selling at the peak and pushing prices downward may be forcing the hands of many who are in no position to give up the roof over their heads.

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LINK: http://www.dallasnews.com/sharedcontent/dws/bus/columnists/all/stories/DN-dimartino_02bus.ART.State....