Sunday, June 24, 2012

Fed reports U.S. families lost 39% of worth in recession

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WASHINGTON - The recent 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 39 percent in just three years, from $126,400 in 2007 to $77,300 in 2010. That puts Americans roughly on a par with where they were back in 1992.

The data represent one of the most detailed looks to date of how the economic downturn altered the landscape of family finance. Over a span of three years, Americans watched progress that took almost a generation to accumulate evaporate. The promise of retirement built on the inevitable rise of the stock market proved illusory for most. Homeownership, once heralded as a pathway to wealth, became an albatross.

Those findings underscore both the depth of the wounds of the financial crisis and how far many families remain from healing. If the recession set Americans back 20 years, economists say, the road forward is sure to be a long one. And, so far, the country has seen only a halting recovery.

"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 free fall."

The recession caused the greatest upheaval among the middle class.

Only roughly half of middle-class Americans remained on the same economic rung during the downturn, the Fed found. Their median net worth -- the value of assets such as homes, cars and stocks minus any debt -- suffered the biggest drops. The wealthiest families, by contrast, actually saw their median net worth rise slightly.

Americans have tried to rebalance the family budget but have found it difficult to reverse the damage.

The survey indicated that fewer families are carrying credit-card balances and that those who do have less debt. The median balance dropped 16 percent, from $3,100 in 2007 to $2,600 in 2010. The Fed also found that the percentage of Americans who don't have any debt at all rose to a quarter of families.

But that progress was undermined by other factors, leaving the median level of family debt unchanged. The report said more families reported taking out education loans. Nearly 11 percent said they were at least 60 days late paying a bill, up from 7 percent in 2007. And the percentage of families saddled with debts greater than 40 percent of their income stayed the same.

Not only were Americans still facing significant debts, they were making less money. Median income fell nearly 8 percent, to $45,800, in 2010. The median value of stock-market-based retirement accounts declined 6 percent, to $44,000.

But it was the implosion of the housing market that inflicted much of the pain. The value of Americans' stake in their homes fell by 42 percent from 2007 to 2010 to just $55,000, according to the Fed.

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 spending 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 -- shrank 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 among Whites, Blacks and Hispanics. "It was turning the clock back quite a bit," Kochhar said.

Although there have been some signs that the recovery has picked up steam -- housing prices have begun to stabilize, and unemployment has fallen -- Fed economists said those improvements largely do not change the survey results.

by Washington Post Jun 11, 2012

Fed reports U.S. families lost 39% of worth in recession

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