Dr. Housing Bubble 08/02/09

The American Household Balance Sheet. Lessons from the Great Depression Part XXVII: Household Net Worth Drop in Great Depression 11 Percent. Current Net Worth Drop of $13.8 Trillion Equivalent to 21 Percent Drop.

$78 trillion. In the third quarter of 2007 American households controlled $78 trillion in various assets including real estate, equities, pensions, and other forms of wealth. Adding in the liability side of the equation, Americans in the peak year of 2007 had a net worth of $64.2 trillion. A sizeable portion of that net worth has evaporated. In fact, that $64.2 trillion is now valued at $50.3 trillion. A 21 percent cut to the American household balance sheet. Now much of this has come because of the housing bubble bursting and the subsequent stock market crash. Even in the Great Depression, household wealth did not evaporate so quickly.

I’ve been digging through research papers trying to find accurate measures of household balance sheets during the Great Depression to try to develop a reference point for our current bubble. The trouble of course is that much of our new toxic instruments like Alt-A mortgages and massive amounts of commercial real estate debt really didn’t have a big impact during the Great Depression. At the time, it is estimated that some 1 million Americans were invested in the stock market. The homeownership rate was rather stable during the early half of the century:



This goes in stark contrast to our bubble peak when homeownership neared 70 percent while the majority of Americans are now involved in the stock market either directly or through a pension fund. Yet looking at research conducted on the American balance sheet during the Great Depression, we find that this current bust has caused more wealth destruction.

http://www.doctorhousingbubble.com/the-american-household-balance-sheet-lessons-from-the-great-depression-part-xxvii-household-net-worth-drop-in-great-depression-11-percent-current-net-worth-drop-of-138-trillion-equivalent-to-2/