Fed Flow Of Funds Data Shows Massive $684 Billion Fall In Value Of Real Estate

The Federal Reserve released the Q3 2010 Flow of Funds report this morning: Flow of Funds.

According to the Fed, household net worth is now off $11 Trillion from the peak in 2007, but up $5.8 trillion from the trough in Q1 2009.

The Fed estimated that the value of household real estate fell $684 billion to $16.55 trillion in Q3 2010, from $17.2 trillion in Q2 2010.

Chart

Photo: Calculated Risk

This is the Households and Nonprofit net worth as a per cent of GDP.

This includes real estate and financial assets (stocks, bonds, pension reserves, deposits, etc) net of liabilities (mostly mortgages). Note that this does NOT include public debt obligations.

Note that this ratio was relatively stable for almost 50 years, and then we saw the stock market and housing bubbles.

Chart

Photo: Calculated Risk

This graph shows homeowner per cent equity since 1952.

Household per cent equity (as measured by the Fed) collapsed when house prices collapsed in 2007 and 2008.

In Q3 2010, household per cent equity (of household real estate) declined to 38.8% as the value of real estate assets fell by almost $650 billion.

Note: something less than one-third of households have no mortgage debt. So the approximately 50+ million households with mortgages have far less than 38.8% equity.

Chart

Photo: Calculated Risk

The third graph shows household real estate assets and mortgage debt as a per cent of GDP.

Mortgage debt declined by $65 billion in Q3. Mortgage debt has now declined by $488 billion from the peak. Studies suggest most of the decline in debt has been because of defaults.

Assets prices, as a per cent of GDP, have fallen significantly and are not far above historical levels. However household mortgage debt, as a per cent of GDP, is still historically very high, suggesting more deleveraging ahead for households.

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