(Bloomberg) — The damage inflicted on U.S. households by the collapse of the housing market and recession wasn't evenly distributed. Just ask Jason and Jessica Alinen.
The couple, who lives near Seattle, declared bankruptcy in 2011 when the value of the house they then owned plunged to less than $200,000 from the $349,000 they paid for it four years earlier, just as the economic slump was about to start. Jason even stopped getting haircuts to save money.
"We thought we'd have a white picket fence, two kids, two dogs, and we'd have $100,000 in equity," said Jason, 33, who does have two children. "It's just really frustrating."
For households headed by someone 40 years old or younger, wealth adjusted for inflation remains 30 percent below 2007 levels on average, according to research by economists at the Federal Reserve Bank of St. Louis. Net worth for older Americans has already recouped the losses.
Such a generational divide has negative implications for consumer spending, which accounts for almost 70 percent of the economy. Younger households tend to spend a greater share of their incomes in furnishing new homes and buying automobiles, in contrast to their older counterparts who save more as they inch closer to retirement.
"These changes going on with individual balance sheets could have impacts on the whole economy," said William Emmons, an economist at the St. Louis Fed who co-authored the study published in February with Bryan Noeth. "Maybe this is one of the reasons that it's been so hard to understand this weak recovery. Not enough people are looking at these."
More exposed
Young families were more exposed to the real-estate slump because homes represented a larger share of their wealth before the crisis, much of it financed with debt, according to Emmons and Noeth. As property values plummeted and jobs dried up, many found they were unable to make loan payments, so, like the Alinens, they deleveraged or faced foreclosure.
Homeownership rates for 35 to 44 year olds dropped 6.3 percentage points to 60.9 percent as of the fourth quarter 2013 from the end of 2007, Census data show. For households under 35, the rate dropped 4.2 points to 36.8 percent. Meanwhile, 71.3 percent of 45- to 54-year-olds and 77 percent of those 55 to 64 own a home.
The average value of housing on young families' balance sheets remains about 35 percent below its 2007 level, the St. Louis Fed paper estimates.
Impact on spending
The collapse in housing wealth accounted for about 40 percent of the shortfall in consumer spending between 2006 and 2009 relative to its previous trend, Princeton University's Atif Mian found in a June 2013 paper. The current rebound in home prices won't provide the same positive impact on spending it once did through what economists call the wealth effect, according to Mian.
"The types of homeowners that would normally spend out of their housing wealth are no longer homeowners," Mian and the University of Chicago's Amir Sufi wrote in a March 7 blog post. "The 'housing as an ATM' channel is not nearly as strong as it was from 2002 to 2006."
Families headed by 25 to 44 year olds accounted for 35.3 percent of all consumer spending in 2012, according to data from Consumer Expenditure Survey. Those led by someone older than 65 accounted for 17.1 percent of all purchases.
"The fact that their wealth levels are down, that they're less likely to own homes, that they're not even comfortable setting up their own households as renters, that has consequences," said Richard Fry, a researcher at Pew Charitable Trusts in Washington, referring to younger households. "They're not buying cable packages, they're not buying mops and brooms from Home Depot."
Missing rebound
With fewer young people owning homes, not as many are benefiting from the rebound in home prices, Fry said.
