Young Families Still Lag Everyone Else in Recovery from Recession

Regarding balance-sheet recovery from the Great Recession, middle-aged and older families have basically fully recovered, while young families are still way behind their previous levels.

In the latest issue of In the Balance from the Federal Reserve Bank of St. Louis’ Center for Household Financial Stability, Senior Economic Adviser William Emmons and Policy Analyst Bryan Noeth note that the average young family (defined as a single- or multi-person family unit headed by someone under 40) has recovered only about one-third of the wealth it lost during the recession.  On average, young families remain about 30 percent behind the real net worth of the average young family in 2007, while middle-aged families were behind their 2007 counterparts by only 1.3 percent and older families were 3.2 percent ahead.

Emmons and Noeth examine a few reasons for the lag.  They point out that young families’ wealth has been more sensitive to recessions than the wealth of middle-aged and older families, on average.  The real wealth of all three groups declined between 1989 and 1992, and again between 2007 and 2010.  However, the average wealth of young families declined more steeply than that of the other groups.  In addition, young families’ wealth declined between 2001 and 2004, while the wealth of middle-aged and older families did not.

Emmons and Noeth also identified housing as a culprit behind the slow recovery of young families’ wealth, with several housing-related factors playing roles.  One was a retreat from homeownership by young families.  While young families aren’t the only category that has seen a decline in homeownership rates, they have seen the strongest decline.  The homeownership rate for young families declined from 50.1 percent in 2005 to 42.2 percent in 2013, while the rate for middle-aged families saw a notably smaller decline from 76.9 percent in 2005 to 72.1 percent in 2013.  The homeownership rate for older families actually increased by almost a full percentage point during this same period.

While the homeownership rate will likely stabilize for young and middle-aged families at some point, Emmons and Noeth also mention that rates may stay under their prerecession peaks, even as families get older.  They note “This seems likely because the 2004-06 period likely represented unusual conditions in housing and mortgage markets that we will never see again.  Thus, it appears unlikely that the overall homeownership rate will return to its peak level any time soon, if ever.”

• In the Balance: Housing Crash Continues to Overshadow Young Families’ Balance Sheets
• The Regional Economist: The Rise and (Eventual) Fall in the Fed’s Balance Sheet
• Economic Synopses: The Deleveraging of U.S. Households Since the Financial Crisis