New data track the housing collapse’s effects on net worth

11.27.2012 | A new study by New York University’s Edward Wolff traces the fluctuating fortunes of Americans from 1962 to 2010. Among other things, the findings in the paper, “The Asset Price Meltdown and the Wealth of the Middle Class,” underscore just how much of our wealth is concentrated in our homes, and consequently, the pain a decline in housing values inflicts. We’ve written before on the impact of the foreclosure crisis (here and here) on communities. This paper brings the impact home, so to speak. 

Between 2007 and 2010, the overall homeownership rate declined from 68.6% to 67.2%, according to the Survey of Consumer Finances. Housing values declined 24% in real terms in just three years—and with it, the net worth of many Americans. Housing constitutes 30% of total assets for all households, and two-thirds of middle-class households. As Wolff writes:

The most telling finding is that median wealth plummeted over the years 2007 to 2010, and by 2010 was at its lowest level since 1969. …Relative indebtedness continued to expand during the late 2000s (2007 to 2010), particularly for the middle class, though the proximate causes were declining net worth and income rather than an increase in absolute indebtedness. …The sharp fall in median net worth and the rise in its inequality in the late 2000s are traceable to the high leverage of middle class families in 2007 and the high share of homes in their portfolio.

The 1.4 percentage point decline in homeownership that Wolff documents seems small compared to the news headlines. But the decline hit certain groups harder.

Looking at homeownership declines by age, education, income, race-ethnicity, Wolff finds that those hardest hit were as follows (in order of biggest percentage point decline):

  1. 1. Families with incomes between $75,000 and $100,000 (a 4.9 percentage point decline)
  2. 2. Households headed by someone with just a high school degree (4.3 percentage point decline)
  3. 3. Households earning $15-25,000 (4.0 percentage point decline)
  4. 4. Households earning less than $15,000 (3.9 ppt decline)
  5. 5. Households younger than age 35 (3.2 ppt decline)


More dramatic is the growth in the number of families underwater, owing more on their homes than they’re worth. In 2007, as Wolff reports, only 1.8 percent of homeowners were underwater. By 2010, 8.2 percent were.

Interestingly, the groups we might think would have the highest rates of “negative equity” were not minorities, single females, or those with the least education or the lowest incomes. In fact, these groups were among the least likely to be underwater.

The risk of being underwater grows with income and declines with age. Only 2.5% of homeowners earning less than $15,000 a year were underwater while 11.7% of those making $50-75,000 were underwater.

The hardest hit were again the youngest households. Among homeowners under age 35, 16.2% were underwater while only 2.7% of those over age 75 were.

The risk of negative equity also generally grows with education.

  • For those with less than a high school degree, 5% were underwater.
  • For those with just 12 years, 8.4% were underwater.
  • For those with 13-15 years of schooling, 10.5% were.
  • For those with 16 years, 7.8% were underwater.

Still others lost a lot of equity in their homes. On average, families saw a 25% decline in their home equity amounts.  Here again, the youngest households were hardest hit, losing 59% of the equity in their homes. Hispanics also lost big, losing 48% of their home equity.

Wolff also argues that there’s little sign that the pace of foreclosures will slow in the near future. He finds that three times as many households are likely to fall behind or remain behind on their mortgage payments than the share who are currently behind.

While Wolff looks beyond housing in the report in documenting the effect of the Great Recession on the middle class, because housing is such a prominent fixture in families’ net worth, the declines in values and homeownership have clearly left a deep scar.

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