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The summary talks about two "smoking guns" for wealth increase in the oldest age group: home ownership rate and stock portfolio value. To me, though, these see

by lapcat 1y ago

The summary talks about two "smoking guns" for wealth increase in the oldest age group: home ownership rate and stock portfolio value. To me, though, these seem like effects rather than causes. In other words, the older age group has enough money to afford these things. I doubt that the oldest age group is somehow vastly better than others at picking stocks to buy; their stock portfolios are larger because they have more money to invest in the same stock market as everyone else, right? And according to the last chart in the paper, on the final page, the home ownership rate of the under 35 group is close to the same in 2022 as it was in 1983, though it dropped lower in 2016. Thus, I get the impression that the first factor mentioned in the summary, mortgage debt, may be the main driver. In other words, presumably, it's taking much more for the youngest group to pay off their mortgages than it did for the oldest group, because the price of housing has increased significantly. And money going into mortgage payments is money not going into other investments such as stock.

jt2190 1y ago
I think that’s what the paper was trying to express: That the older cohort got more leverage from the increase in housing prices because they had more invested when prices shot up. > Summary and Concluding Remarks > The paper focuses on the slippage in the net worth ratio among households under age 35 relative to all households between 1983 and 2022 and its phenomenal rise among households aged 75 and over. Based on differential leverage between the two groups (the much higher debt- net worth ratio among younger families compared to older ones), we would have expected exactly the opposite – namely, that the net worth of younger households should have risen relative to older ones. Indeed, the average real rate of return on net worth of the youngest age group over years 1983-2022 was 5.67 percent while that of the oldest was 3.29 percent. What factors explain these seemingly perverse results? > The first is increasing net home equity for the elderly. The increase in the ratio of mean net home equity to the overall level over 1983- 2022 explains a substantial 38.3 percent of the relative gain in net worth of the 75 and over age group but very little for that of the youngest group. The second is surging mortgage debt among the youngest households. This explains 297 percent (.160/.054), of the actual decline in the group’s mean net worth ratio – that, is almost three times the actual decline. Its relative decline also accounts for a significant 35.2 percent of the increase in the oldest group’s mean net worth ratio. However, it should be stressed that these results are not additive across the various factors considered in the analysis > Third, the homeownership rate might well be close to a “smoking gun” for the oldest age group. It shoots up by 11.5 percentage points for this group, and the group’s relative wealth holdings expand by a sizeable 50.4 percent. Likewise, relative to the overall average homeownership rate, that of the oldest enlarges by 8.9 percentage points from 6.0 to 14.9 percent. The fourth is the fantastic growth in stock holdings among the oldest age group, which could constitute another smoking gun. The value of the group’s stock portfolio relative to the overall average skyrockets from 0.56 to 3.47, which accords with the sharp increase in its relative net worth, and accounts for a staggering 269 percent of its gain in net worth relative to the overall average. > Fifth, among the youngest age group, despite dire press reports, educational loans fail to appear as a significant factor. As a fraction of overall mean student debt, it actually fell from 2.45 in 2007 (the first date of available data) to 1.66 in 2022, so that the trend is contrary to that of the group’s relative net worth. Moreover, subtracting the change in the group’s mean educational debt over 2007- 2022 from its 2007 net worth ratio lowers the group’s mean net worth ratio by a rather trivial 0.006. 24 References Bricker, Jesse, Jacob Krimmel, Alice Henri
kube-system 1y ago
They're causal -- old people predominantly aren't buying new homes or investing in new equities, they collected those assets during their working years when they were cheap, and both of those asset classes have appreciated an extraordinary amount since the middle of their working careers.
- lapcat 1y ago
  > old people predominantly aren't buying new homes What do you mean exactly by buying new homes? Obviously the average length of home ownership for the oldest group would be much longer than for the youngest age group. How new were their homes when they were first purchased, and has that number changed over time? I have no idea. But if the value of older homes is increasing, it means that someone is purchasing those older homes. > or investing in new equities If I'm reading the tables right, it looks like the oldest group received their largest jump in net worth during 2019-2022 and actually did worse than all other groups in 2016-2019.
  - kube-system 1y ago
    I mean that older people have a longer duration of time in their current residence. Their homes have had a longer time to appreciate. > If I'm reading the tables right, it looks like the oldest group received their largest jump in net worth during 2019-2022 and actually did worse than all other groups in 2016-2019. I didn't dig into it too much, but the SP500 did better during the former period.
    - lapcat 1y ago
      > Their homes have had a longer time to appreciate. A home doesn't inherently appreciate over time, like a fine wine. Aside from remodeling, the only thing that increases the value of a home over time is increased demand for homes relative to supply, which was my original point: "the price of housing has increased significantly."
      - kube-system 1y ago

by lapcat 1y ago

jt2190 1y ago

I think that’s what the paper was trying to express: That the older cohort got more leverage from the increase in housing prices because they had more invested when prices shot up. > Summary and Concluding Remarks > The paper focuses on the slippage in the net worth ratio among households under age 35 relative to all households between 1983 and 2022 and its phenomenal rise among households aged 75 and over. Based on differential leverage between the two groups (the much higher debt- net worth ratio among younger families compared to older ones), we would have expected exactly the opposite – namely, that the net worth of younger households should have risen relative to older ones. Indeed, the average real rate of return on net worth of the youngest age group over years 1983-2022 was 5.67 percent while that of the oldest was 3.29 percent. What factors explain these seemingly perverse results? > The first is increasing net home equity for the elderly. The increase in the ratio of mean net home equity to the overall level over 1983- 2022 explains a substantial 38.3 percent of the relative gain in net worth of the 75 and over age group but very little for that of the youngest group. The second is surging mortgage debt among the youngest households. This explains 297 percent (.160/.054), of the actual decline in the group’s mean net worth ratio – that, is almost three times the actual decline. Its relative decline also accounts for a significant 35.2 percent of the increase in the oldest group’s mean net worth ratio. However, it should be stressed that these results are not additive across the various factors considered in the analysis > Third, the homeownership rate might well be close to a “smoking gun” for the oldest age group. It shoots up by 11.5 percentage points for this group, and the group’s relative wealth holdings expand by a sizeable 50.4 percent. Likewise, relative to the overall average homeownership rate, that of the oldest enlarges by 8.9 percentage points from 6.0 to 14.9 percent. The fourth is the fantastic growth in stock holdings among the oldest age group, which could constitute another smoking gun. The value of the group’s stock portfolio relative to the overall average skyrockets from 0.56 to 3.47, which accords with the sharp increase in its relative net worth, and accounts for a staggering 269 percent of its gain in net worth relative to the overall average. > Fifth, among the youngest age group, despite dire press reports, educational loans fail to appear as a significant factor. As a fraction of overall mean student debt, it actually fell from 2.45 in 2007 (the first date of available data) to 1.66 in 2022, so that the trend is contrary to that of the group’s relative net worth. Moreover, subtracting the change in the group’s mean educational debt over 2007- 2022 from its 2007 net worth ratio lowers the group’s mean net worth ratio by a rather trivial 0.006. 24 References Bricker, Jesse, Jacob Krimmel, Alice Henri

kube-system 1y ago

They're causal -- old people predominantly aren't buying new homes or investing in new equities, they collected those assets during their working years when they were cheap, and both of those asset classes have appreciated an extraordinary amount since the middle of their working careers.

lapcat 1y ago
> old people predominantly aren't buying new homes What do you mean exactly by buying new homes? Obviously the average length of home ownership for the oldest group would be much longer than for the youngest age group. How new were their homes when they were first purchased, and has that number changed over time? I have no idea. But if the value of older homes is increasing, it means that someone is purchasing those older homes. > or investing in new equities If I'm reading the tables right, it looks like the oldest group received their largest jump in net worth during 2019-2022 and actually did worse than all other groups in 2016-2019.
- kube-system 1y ago
  I mean that older people have a longer duration of time in their current residence. Their homes have had a longer time to appreciate. > If I'm reading the tables right, it looks like the oldest group received their largest jump in net worth during 2019-2022 and actually did worse than all other groups in 2016-2019. I didn't dig into it too much, but the SP500 did better during the former period.
  - lapcat 1y ago
    > Their homes have had a longer time to appreciate. A home doesn't inherently appreciate over time, like a fine wine. Aside from remodeling, the only thing that increases the value of a home over time is increased demand for homes relative to supply, which was my original point: "the price of housing has increased significantly."
    - kube-system 1y ago