The median net worth of the American family fell by almost 40 percent between 2007 and 2010, according to the Federal Reserve report released on Monday.
The drop between 2007 and 2010 wipes out 18 years of economic progress for Americans in the middle of the income distribution, taking the median household net worth to levels not seen since the early 1990s.
The Survey of Consumer Finances published by the Federal Reserve Board on a triennial basis reveals the depth of the financial destruction wrought by the housing crisis. Between 2007 and 2010, median net worth fell from $126,400 to $77,300 – a 38.8 percent drop – while average net worth fell 14.7 percent percent.
Incomes fell sharply as well. Median income fell by 7.7 percent and the average income fell by 11.1 percent. Prior to the 2007-2010 period, median income had remained unchanged, with the mean rising 8.5 percent.
Hardest hit were Americans whose biggest asset was their house because Americans in this group also experienced the biggest declines in median incomes as a percentile of net worth.
The poor suffered the most: “From 2007 to 2010, the median for the lowest quartile of net worth fell from $1,300 to zero—a 100 percent decline; at the same time, the mean for the group fell from negative $2,300 to negative $12,800.”
Saving fell overall to 52 percent, the lowest level since the survey began collecting this information in 1992. This is expected because many Americans have been using savings to support themselves in lieu of a job.
Historical context reveals just how wild the ride has been in the years leading to the crash. Between 2001 and 2004, the median household’s net worth remained stable around $107,200, then increasing by 2007 to $126,400 before the drastic fall. Much of that increase was due to the housing bubble, of course, and its deflation caused the median home equity to fall to $55,000 in 2010 from $95,300 in 2007, a 42.3 percent drop.
While the report shows the depth of the economic crisis, its numbers are a year old. Since 2011, the economy has undergone mild improvement, which suggests the obvious question: how much of that lost wealth has been recovered?
According to the latest flow of funds report, household net worth rose by $2.8 trillion in the first quarter of 2012 versus the fourth quarter of 2011. But the growth was led by an increase in net worth among those Americans who have been able to participate in the 12 percent rally in the stock market this year.
In other words, things remain bleak for the median American household. Household debt levels did not see great declines, suggesting most households struggle with repayment. And how can they not? Real wages have been drifting down. Total debt today is about where it was in 2007, and remains well above the lows seen in the early years of the first decade of the century. And borrowing continues; consumer credit activity was up from the first quarter of 2011 by $111 billion, suggesting that some consumers may be turning to credit to cover necessities.