The Residential Real Estate Crash Index Message Board

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Strategies & Market Trends : The Residential Real Estate Crash Index

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To: Wyätt Gwyön who wrote (6881)	11/17/2002 12:48:59 PM
From: GraceZ	Read Replies (2) of 306849

there is a statement of fact: avg. net worth is -173K He used the word median not average. Median is very different from average although in theory they could produce the same number. Median means that half the 55-65 year olds have a net worth above and half have it below. Just stop for a minute and consider what that means. It means that half the 55-65 year olds owe far more than they own. First off, unless they are borrowing from the neighborhood loan shark I can assure you that most loans are not made to people without an asset side to cover the loan. Now suppose the loans were made and the asset side disappeared? One could argue pensions, IRAs and 401Ks have been hard hit....but you can't pledge those assets to borrow (although you can borrow cash from your 401, you can't borrow on the assets). If you borrowed on stocks in a taxable account, you'd have gotten a margin call on the way down. Now if housing had declined the 40-60% everyone here seems to be hoping for, perhaps this statement could be considered reasonable but housing has risen considerably in the time that stocks have fallen. For most people to have a negative net worth figure that high their house would have to vaporize without insurance. Look at your own balance sheet, has it taken a serious hit in the last three years? Are you legally bankrupt because that's what having a negative net worth means. Are half the people your age bankrupt to the tune of negative $173K or more? As bizarre as it might seem, its not that easy to do. I have a few clients who have a large negative net worth number but they are people who ran businesses and had large lines of credit based on a business which disappeared and they didn't own houses. Most people are never allowed to borrow $173K in excess of the asset side. I've had to do a net worth statement every year to renew my bank lines, its secured on my business and my real estate holdings if either of those things go down in value the bank calls the line. Sure you can get lots of unsecured lines run them all up, but this hardly describes half the 55-65 year olds! Most people that age have houses and other financial assets if they've had decent paying jobs most of their lives. If they are people who have lived working class to poor most of their lives there is no way they'd ever be able to get that far under water before being cut off. One doesn't need to review their research to know that the figure is not correct, you only have to employ a small amount of common sense.

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