Yesterday, a new report from the Federal Reserve highlighted another devastating effect of the U.S. recession: Thanks mostly to lower home values, Americans’ median wealth has been slashed by more than a third. Bloomberg reports:
The financial crisis wiped out 18 years of gains for the median U.S. household net worth, with a 38.8 percent plunge from 2007 to 2010 that was led by the collapse in home prices . . .
Median net worth declined to $77,300 in 2010, the lowest since 1992, from $126,400 in 2007, the Fed said in its Survey of Consumer Finances. Mean net worth fell 14.7 percent to a nine- year low of $498,800 from $584,600, the central bank said yesterday in Washington. Almost every demographic group experienced losses, which may hurt retirement prospects for middle-income families, Fed economists said in the report.
“The impact has been a massive destruction of wealth all across the board,” said Lance Roberts, who oversees $500 million as chief executive officer of Streettalk Advisors LLC in Houston. “What you see is an economy that’s really very, very stressed for the bottom 60 to 70 percent of the population that’s struggling just to make ends meet.”
The declines in household wealth in the course of the longest and deepest recession since the Great Depression have held back the consumer spending that makes up about 70 percent of the economy. . . .
“Although declines in the values of financial assets or business were important factors for some families, the decreases in median net worth appear to have been driven most strongly by a broad collapse in house prices,” the Fed economists wrote.
The S&P/Case-Shiller U.S. Home Price Index fell 23 percent in the three years through December 2010. The Standard & Poor’s 500 Index (SPX) lost 14 percent in the same period.
Though this news certainly contributes to the atmosphere of economic gloom, it’s worth noting that this is an economic factor which hasn’t been so obvious in the headlines, but has been worsening Americans’ sense of their own economic insecurity. The “wealth effect” posits that people’s spending habits are related to their perceived wealth — thus, even as, say, employment recovers, if their wealth remains diminished, many Americans today may still feel that they’ve lost economic ground (from where they were, say, four years ago . . .).