The housing crisis drove the 38.8 percent decline in median net worth for U.S. households, according to a new Federal Reserve report. Learn more about the effects of housing prices on wealth.
Due primarily to the housing crisis, median net worth fell 38.8 percent across American households between 2007 and 2010, according to the 2012 Survey of Consumer Finances released by the Federal Reserve Board of Governors. The decline was “relatively muted” for the top 10 percent of earners and the top 10 percent wealthiest families.
Families who had a relatively large share of their assets invested in housing saw their median net worth fall by as much as 55 percent. Especially affected by the housing crises were families living in the West and families headed by an adult 35 to 44 years old. Investment and business losses also contributed to the drop in median net worth, reported the Federal Reserve, but the decreases appear to have been “driven most strongly by a broad collapse in house prices.” (Even the wealthiest of Americans feel less well off, according to Millionaire Corner research.)
The housing crisis and its devastating effects on home values has cooled affluent investors’ love affair with real estate. Millionaires, for example, are more likely to say their best financial decision ever was “making consistent investments in a retirement plan” (38 percent) or “having a frugal lifestyle” (25 percent), rather than “purchasing a home” (13 percent) or investing in other real estate (8 percent), according to a Millionaire Corner survey conducted in May.
More than one-third of Millionaires report substantial losses in their home value over the last five years, according to our March survey. Another 40 percent say their home value is lower, and 14 percent say it has remained the same. (Older investors are more apt to tell a young adult to invest in a retirement plan than buy a house, according to our research.)
The housing crisis and economic downturn took a toll on household earnings, as well as net worth. Median family income, after adjustments for inflation, fell 7.7 percent between 2007 and 2010, following a slight drop in the preceding three years. Drops in income were most pronounced among highly educated families and households headed by adults younger than 55. Real mean income fell by 11.1 percent across all families between 2007 and 2010. The decline was worse among the top 10 percent of earners, and for more highly educated workers, who had experienced an increase in real mean income the prior three years.
A significant share of wealthy investors believes the housing crisis may continue. Fewer than half (42 percent) of Millionaires surveyed in the first quarter of 2012 feel it’s a good time to buy real estate and, thanks largely to the housing crisis, 23 percent do not view their home as a stable financial asset.