[H]ome equity seems to have emerged as the wealth-creation hero. The eldest millennials — now in their early 40s, old enough to sue for age discrimination — boast about twice the median home equity a Gen Xer did at that age. They also enjoy a substantial lead over boomers.
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And millennials were perfectly positioned to maximize their benefit. Many had only recently entered the housing market; suddenly, the biggest financial bet of their lives had paid off with unprecedented speed. They’d leveraged their 5 or 15 percent down payment into a claim on record appreciation of their home’s entire value.
But all flavors of assets aren’t created equal. The wealth created by rising home prices exists mostly on paper and is very hard to tap — which means it may not translate to a higher standard of living, said Jeremy Horpedahl, a University of Central Arkansas economist who closely tracks millennials’ fortunes.
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Then there’s the harsh reality — as we’ve previously established — that many millennials have been entirely shut out of the housing market. That often leaves them renting. And the net worth of the typical American renter is just $10,400, a number that more or less vanishes when charted alongside the $396,500 in net worth claimed by the typical American homeowner.
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[F]olks living with their parents or roommates aren’t counted in this data, at least not the same way as those who have gone off on their own.
Due to the difficulties of disentangling a family’s holdings, the Fed combines the wealth of “financially interdependent” household units and effectively assigns it the demographics of the head of household (or more accurately, what the Fed calls the “economically dominant single individual or couple” in the home’s “primary economic unit”).
So, when we say millennials have record wealth for their age, we’re really saying millennials who have become financially independent are doing well for their age.
If we could correct for this, millennials wouldn’t look so hot after all — financially, at least.
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It sounds an awful lot like survivorship bias [...]
From the article:
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