Tom Murphy
RedwoodAge.com

The bursting of the housing bubble has robbed millions of boomers or most or all of their wealth as they near retirement, according to a study by a prominent Washington think tank.

The report by the Center for Economic and Policy Research also predicts that the aging homeowners will get dramatically poorer by next year if housing prices continue to fall, which appears likely.

"This extraordinary destruction of wealth will have tremendous implications for millions of families as they enter retirement," said Dean Baker, who co-authored the center's report.

"Coupled with a very low personal savings rate, this means that many people will only have Social Security and Medicare to rely on in their retirement."

The gloomy forecast comes as Congress wrestles with GOP-led efforts to trim benefits for Medicare and Social Security to cover anticipated shortfalls, even though current benefits leave many elders below the real costs of living. Boomers are already seeing a surge in bankruptcy filings, leading all age groups.

Even if home prices stay the same, the median household headed by people 45-54 will have $113,600 in personal wealth next year, which is 24.7 percent less than in 2004, the report said. To put that in perspective, the average cost for a nursing home in New York is over $145,000 a year.

If prices drop another 10 percent, those families would have 34.6 percent less wealth. And a 20 percent drop in home values would translate to a 45.6 percent plunge in personal wealth, the center reported, leaving them worth about $81,500.

In cruel irony, the report was released just as a leading index of home values noted a record 15.7 percent plunge in home values during May from levels a year earlier. S&P's Case-Shiller index based the figure on a sampling home sales in 20 major US metropolitan areas.

The center's report, titled The Housing Crash and the Retirement Prospects of Late Baby Boomers, included better news for renters, saying they'll have more wealth next year than homeowners. The research group based its study on data from the Federal Reserve and the Case-Shiller index.

Dubious Policies
The center said the study reflects government policies that promoted home ownership during the housing bubble when sub-prime loans were easy to get, even for people who clearly could not afford the payments. It said the data should prompt "serious re-examination" of current proposals to cut Social Security and Medicare.

"Policies that perhaps could have been justified at the peak of the housing bubble make much less sense now that tens of millions of near-retirees have just seen most of their wealth disappear," said Baker.

Within the Case-Schiller index, all 20 cities showed declines for the first time ever. Charlotte, N.C., was the final city to fall, with prices dropping 0.1 percent from a year earlier. The hardest hit cities are two retirement meccas - Las Vegas and Miami, where prices fell 26.8 percent and 26.7 percent, respectively, over the past year.

Combined with higher fuel prices, the decline in home equity is delivering a double-whammy to consumers. The Conference Board, a private fiscal study group, said consumer confidence fell sharply in June to its fifth-lowest level ever while consumer expectations hit an all-time low.