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Young Families Hurt More By Recession

(via Flickr/MoneyPit)

Younger families are not recovering as quickly from the recession as their elders.

An analysis from the Federal Reserve Bank of St. Louis found that families headed by someone younger than 40 have recovered only about one-third of their pre-recession wealth.

Meanwhile older families have nearly regained their pre-crisis level of wealth.

Credit (Federal Reserve Bank of St. Louis)
From "Housing Crash Continues to Overshadow Young Families Balance Sheet" by Bill Emmons and Bryan Noeth.

So, why are those under 40 having a harder time recovering?

In part, it’s because the housing market crash hit younger families harder, according to the report's authors, economists Bill Emmons and Bryan Noeth. The average value of housing for people in the under-40 demographic is about 35 percent below the 2007 level.

While recessions historically have affected young families more, Emmons said the rise in home ownership and access to credit may have made this group more vulnerable during the Great Recession when the housing market tanked.

"We really forgot about the idea that housing prices could go down and that they could go down a lot," Emmons said.

Now younger families are leading the move away from home ownership. The analysis finds  that while 50.1 percent of young families owned homes in 2005, that figure fell to 42.2 percent last year. The drop was less sharp among middle-aged families and actually increased for older families.

Credit (Federal Reserve Bank of St. Louis)
From "Housing Crash Continues to Overshadow Young Families Balance Sheets" by Bill Emmons and Bryan Noeth.

Emmons said the 8 percentage point drop in home ownership among young families is largely the result of those who left homes due to foreclosure or distressed sales rather than the decline in first-time buyers.

"There’s some slowdown in entering into homeownership, but it’s mostly a large effect of falling out of homeownership that’s dominating the picture," Emmons said.

The national homeownership average peaked in 2004 at about 69 percent. Last year it dropped to 65 percent. 

Credit (Federal Reserve Bank of St. Louis)

Emmons said after 10 years of a steep rise in homeownership from 1994-2004, followed by 10 years of sharp decline, the adjustment may not be over yet.

"We may end up where we were before, which is 64 percent before this big change occurred in the '90s," he said.

The picture is a bit rosier for St. Louis. The average rate of home ownership in 2013 was 72 percent.

Emmons said that high rate can be accounted for by this area's slightly older population.

Follow Maria Altman on Twitter: @radioaltman

Maria is the newscast, business and education editor for St. Louis Public Radio.