The Center for Economic and Policy Research says the median households head by those ages 45-54 in 2009 will have about 25% less wealth than the similar demographic in 2004. In dollars, household wealth will decline to $113,268 from $150,113.
Further, the above assume March 2008's housing prices hold for 2009: if they don't and prices fall another 10%, household net worth declines by about 35%; 20%, by about 45%, the CEPR said.
Economist Peter Dawson, who is not affiliated with the CEPR or the study, told BloggingStocks part of the problem was "unreasonable expectations regarding home appreciation rates, the belief that 10-15% real estate gains would continue for decades. It got too many adults out of the traditional saving and investing mode and into thinking their home would serve as a major return on investment." Most homes do appreciate, and they can help build wealth, Dawson said, but homeowners must think in terms of a 6-9% average, annual appreciation rate, "which is a more-realistic return for residential dwellings."
As a result of the above, as well the inability of policy makers to emphasize saving for retirement and steer the public away from the notion that a home can serve as a major component of a nest egg for retirement, CEPR is opposing benefit cuts to Social Security and Medicare, arguing that any cuts would "impose serious hardships" on those approaching retirement.
Economic Analysis: The above is a sobering statistic on household wealth, and underscores how the nation needs to reemphasize saving, living below one's means, and investing - - not relying on a home's appreciation for the bulk of net worth. Further, part of that investing should it include stocks, for many citizens. True, stocks are not suitable for all investors, but if one can tolerate the risk, for total, average, annual return on equity, no asset class outperforms stocks.
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