What is the Impact of Foreclosures on Retirement Security?

Abstract

Using data from several sources, we show that households nearing retirement have lower rates of housing distress than younger households, as measured by arrears and foreclosure rates.  However, almost all of the 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.  Declines in house prices will adversely affect households that need to liquidate housing wealth, and rising mortgage obligations will increase pressure on retirement resources. We develop an econometric model to show factors associated with housing distress and then use the results to forecast housing distress among older households through 2012.  We project that the risk of arrears will increase to 3.4 percent in 2010 and 4.4 percent by 2012.  We also find that 6.7 percent of HRS households have children or other relatives who are facing housing distress, potentially putting further pressure on their retirement preparedness.