The 2010 edition of the Federal Reserve’s survey of household balance sheets, the Survey of Consumer Finances (SCF), will soon be published. NAHB Economics will take a detailed look at the data at that time, but the Fed has given us a glimpse of the headline findings in a new bulletin paper.
The major headline is that median net worth for the typical American family fell nearly 40% from 2007 to 2010.
This finding illustrates two major points about the Great Recession. First, unlike other recessions, the fallout from this cycle took the form of a balance sheet recession, which requires a much longer time period for recovery, as the housing industry knows well. Second, the housing price declines took a major toll on housing net worth, traditionally the most important source of wealth for middle class families.
It is worth noting that the data come from 2010, and as we have been reporting, household balance sheets have in fact recovered a great deal between 2010 and today. We expect household deleveraging to continue into 2013, and as that process comes to its conclusion, unlocked pent-up housing demand will help support the emerging recovery in housing.
Additionally, it is worth noting that the 2010 Fed data indicate that in addition to housing price declines, financial asset price declines hurt household net worth. However, unlike housing, there has been significant, and quick, recoveries for stock prices. For example, since the beginning of 2010, the S&P 500 index is up more than 15%. This is obviously not the case for housing prices, and highlights the importance of housing policy issues during the 2012 presidential election campaign and the years ahead—particularly the importance of avoiding policies that would further weaken house prices.
For the housing community, specific findings of interest from the 2010 SCF, compared to the 2007 edition, include:
- Median family net worth fell from $126,400 to $77,300 (39%)
- In percentage terms, the largest declines in median net worth were for those in the 60th to 80th percent income class (middle class), whose net worth fell 40%
- Classified by age of head of household, those in the 35 to 44 age class experienced the largest declines in net worth (54%), followed by those 45 to 54 (39%), 55 to 64 (32%), and less than 35 (25%)
- The median homeowner’s net worth fell from $246,000 to $174,500 (29%), while the median renter’s net worth fell from $5,400 to $5,100 (6%)
- Across age groups, the value of primary residences fell the greatest in percentage terms for the youngest homeowners: those 35 and under saw a 23% median decline, followed by 21% for those aged 65 to 74 and 35 to 44