What is the Impact of Foreclosures on Retirement Security?
Using data from several sources, we show that households nearing retirement have lower rates of housing distress than younger households do, as measured by arrears and foreclosure rates. However, almost all of their housing wealth gains observed for cohorts aged 51-56 between 1992 and 2004 were erased by 2010, while their mortgages have grown throughout. As a consequence, their loan-to-value ratios are considerably higher, though the percentage paying more than 30 percent of their household income towards their mortgage remains flat. Worrisomely, their financial wealth also declined between 2004 and 2010. Consequently, they are more exposed to housing market volatility than in the recent past, and their retirement income may have to be stretched farther, in comparison to previous cohorts. We then use our econometric model to forecast the risk of mortgage arrears and foreclosures among older households through 2012. We project that the risk of arrears will increase to 4.2 percent in 2010, declining to 3.2 percent by 2012. We also find that 6.7% of HRS households have children or other relatives who are facing housing distress, potentially putting further pressure on their retirement preparedness.
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