The economist notes that in past generations, his parents and grandparents would have purchased a home in anticipation of paying off the mortgage in full. In recent years, it was common to refinance homes or take out debt on home equity that no longer exists.
"People took a very big hit," he says. "The problem is, coming off both bubbles, people were not saving. They had changed their behavior because they had thought all this money would be there, and then it wasn't."
Now that many have lived through two "ephemeral" bubbles, Baker expects that younger generations will develop better saving habits. He advises older consumers to cut back, save more and adjust expectations for a tough road ahead. He says it's "foolish" to hold onto a home believing that prices will escalate again, if there's a need to downsize, upgrade or simply relocate.
"The most important thing is to think realistically," he says. "It's foolish for people to hold out thinking the prices are going to come back. That would just be compounding the harm to their financial situations and their lives."
Lauren Tara LaCapra
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