House Prices collapse deflated US household net worth

Since the sub-prime home loan bubble burst in 2007 causing house prices to fall 40%, Americans have suffered a record decline in household wealth to 1992 levels

According to a Federal Reserve report on the recent recession, the median family's net worth dropped nearly 40 per cent during the three-year period, and this is linked directly to declines in house prices.
This was the biggest drop in net worth since the survey started in 1989.

House equity linked to net worth?

The problem I have with this notion is that the family home should never be viewed as an investment, and no self respecting financial planner would use the family home as a gauge of personal wealth.

Household wealth in the US now stands at 1992 levels as house prices slid

The median net worth, [the value of assets less debts], plunged from $126,000 to just $77,300 in 2010 , which brings it thudding back to 1992 personal wealth levels. These figures also show that most people's "wealth" is tied up in their homes. Which says a lot for the real wealth of people in the US.

Personal wealth in the US appears to be a mirage, if you accept the notion that a home should never be included in a net worth sum.

"Housing was of greater importance than financial assets for the wealth position of most families," the Fed said.
"A substantial part of the declines observed in net worth over the 2007/10 period can be associated with decreases in the level of unrealized capital gains on families' assets," the Fed said.
"The share of total assets of all families attributable to unrealized capital gains from real estate, businesses, stocks, or mutual funds fell 11.6 percentage points to 24.5 per cent in 2010," it said.

We must be forget that many in the US used their homes as cash machines and extracted all the equity from them to fuel their lifestyles, so they would have suffered hard, and many of those would have lost their homes or had their net worth under water.

Household debt levels overall are unchanged

While the overall level of debt owed by families was unchanged, debt as a percentage of assets rose to 16.4 per cent in 2010 from 14.8 per cent in 2007 because the value of the underlying assets, especially housing, decreased faster.

People shed credit card debt.

The share of families carrying a credit card balance fell 6.7 percentage points to 39.4 per cent in 2010. The median balance fell 16.1 per cent to $2,600 in 2010 from $3,100 in 2007. The proportion of families with debt payments greater than 40 per cent of their income was nearly unchanged between 2007 and 2010. These were obviously people who were caught in the debt trap but retained their jobs.
People have hitched their wagon to house prices always appreciating, as a way to built net worth. This is faulty thinking in my view, and why the US housing market has not recovered. It is simply seen as a bad investment, instead of what it is, Place to live and bring up a family in a stable environment.
 Mr Mortgage