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Potential impact of the great recession on asset holdings
The impact of the global recession (which started at the end of 2008 in some countries and in 2009 in others) on the well-being of households has been large, in terms of both flows (earnings, employment income) and stocks (financial wealth, housing wealth). The impact and its distribution on households has still to be assessed, as data are not yet available. Nevertheless, first estimates as to the potential impact on wealth are beginning to emerge.
One way of examining the extent to which household wealth may have been affected by asset changes is to consider asset price volatility according to different price indices. For example, average house price indices suggest that, in some European countries (Germany and Ireland, especially), a fall in housing prices was already occurring in 2007, while prices were still rising in other countries (Table 4). In 2008, on the other hand, there was a decline in house prices in all European countries except for the Netherlands and Switzerland. The fall in prices was small in France and Italy (2%), while in Denmark and Ireland it was much larger. Based on the average value of housing wealth, this suggests a loss in household wealth of several thousand Euros on average.
It needs to be noted, however, that these estimates are very crude and do not take account of regional house price differences in countries; nor do they say anything about the distribution of the losses involved. In addition, the ability of households to use housing wealth as a liquid asset varies from country to country, along with the financial institutions in place.
One study that assesses the potential impact of changes in asset prices on retirement wealth indicates that the resulting losses are, on average, relatively small, though the scale varies across population groups. Banks et al. (2010) indicate that the young are particularly vulnerable, as they tend to hold a large proportion of their assets in housing and to have large outstanding mortgages. Nevertheless, they can withstand the losses involved if they are able to maintain their income at a high enough level and do not have to realise the losses.
