Even if housing prices stop plummeting and the worst of the crash is now behind us, it has left an “extraordinary destruction of wealth” in its wake, sending the median net worth of American households plummeting across the board next year, according to a study released today (PDF) by the Center for Economic and Policy Research.
Since prices started to drop in mid-2006, each U.S. homeowner has lost $50,000 in real housing wealth; and, even if the market proves to have already bottomed out, the collapse has “eliminated most, if not all, of the gains that families had made in accumulating wealth over the last two decades."
The vast majority of American households will emerge from the housing slump with “little or no housing wealth” in 2009 under even the most optimistic scenarios, according to the report.
If house prices stay the same through 2009, the median household headed by a person between the ages of 45 and 54 in 2009–their prime earning years–will have 24.7 percent less wealth than the group median in 2004. As of 2009, these households will have accumulated just $113,268 in net worth–barely $15,000 more than the $97,600 total of their 1989 counterparts.
Were real house prices to fall 10 percent, the median wealth of households in the age group would drop 34.6 percent from 2004 levels, while families in the 18 to 34 cohort would lose 67.6 percent. Under the most pessimistic scenario, families in the 55 to 64 cohort would lose 49.6 percent of their wealth from the 2004 median.
The report predicted “the sharpest falloffs for the youngest families.”
If housing prices were next year to fall 10 percent further below 2008 levels, the projected median net worth of a household headed by someone in the 18- to 35-year-old age range will have plummeted 67.6 percent from five years earlier, and by 56.2 percent for families in the 35- to 45-year-old-range—so the latter group will be about $41,000 less wealthy next year than in 2004.
There’s not much of a silver lining to the report, especially if housing prices continue to drop by the current rate of about 2 percent a month.