NET WORTH OF AMERICAN FAMILY FALLS 40% IN 3 YEARS...

By Ylan Q. Mui,
Updated: Monday, June 11, 5:04 PM

The Great Recession wiped out
nearly two decades of Americans’ wealth, according to government data
released Monday, with middle-class families bearing the brunt of the
decline.

The Federal Reserve said the median net worth of families
plunged by 39 percent in just three years, from $126,400 in 2007 to
$77,300 in 2010. That puts Americans roughly on par with where they were
in 1992.

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 data represents one of the most detailed looks so
far how Americans’ finances have weathered the economic downturn. It
underscores both the depth of the wounds of the financial crisis and how
far many families remain from healing.

“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
survey, conducted every three years, painted a portrait of consumers
still under significant duress: 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 percent of their income also stayed the same. More
families reported being behind on their bills.

The implosion of
the housing market inflicted much of the pain. The value of Americans’
stake in their homes fell by 42 percent 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 percent 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.

“It was turning the clock back quite a bit,” Kochhar said.