The net worth of Americans fell 40% in three years, wiping out two decades of our wealth.
Ylan Q. Mui reports for the Washington Post, June 11, 2012, that the Federal Reserve said today that the median net worth of families plunged by 39% in just three years, from $126,400 in 2007 to $77,300 in 2010.
The data, based on a federal government survey conducted every three years, represents one of the most detailed looks so far how Americans’ finances have weathered the economic downturn. “It’s hard to overstate how serious the collapse in the economy was,” said Mark Zandi, chief economist for Moody’s Analytics. “We were in freefall.”
The biggest drops occurred among middle-income Americans, whose wealth was inextricably linked to the housing market boom and bust. Meanwhile, the wealthiest families actually saw their median income rise slightly.
The implosion of the housing market inflicted much of the pain. The value of Americans’ stake in their homes fell by 42% in those three years to just $55,000. The poorest families suffered the biggest loss of wealth from the drop in real estate prices. But middle-class Americans rely on housing for a larger part of their net worth. For some, it accounts for just over half of their assets. That means every step downward is felt more acutely.
Rakesh Kochhar, an economist at the Pew Research Center, calls this phenomenon the ”reverse wealth effect.” As consumers watched the value of their homes rise during the boom, they felt more confident in spending more money even if they did not actually cash in on the gains. Now, the moribund housing market has made many Americans wary of spending, even if their losses are just on paper.
According to the Fed survey, that paper wealth — or what is officially called unrealized capital gains — shrunk 11% to about a quarter of American’s assets.
The findings track research Kochhar released last year that showed a dramatic drop in household wealth during the recession, particularly among minorities. That study found record high disparities in wealth between whites and blacks and Hispanics.
What this means for most Americans — you and me — is that our net worth is back to where they were in 1992. Twenty years of wealth just went Pffft.
The news gets worse.
Not only are we poorer by 40%, most of us are in poor financial shape to withstand or survive another setback.
Though Americans made progress in paying off their credit cards, the median value of family debt did not change between 2007 and 2010. The percentage of families saddled with debt greater than 40% of their income also stayed the same. Worse still, more families are reporting they’re behind on their bills.
In fact, a good case can be made that the U.S. economy is not in a “great recession.” We are in a Depression.