Decline In Household Net Worth Still Follows $8-Trillion Constant

As I noted briefly yesterday, the Federal Reserve's Flow of Funds report for the third quarter [pdf] came out last week, and showed a stunning but not unprecedented 4.1 percent drop in the total wealth of Americans between the second and third quarters. 

Even more striking is that this was the second quarter in a row of lost household net worth, which had been growing sporadically since hitting a trough in the beginning of 2009. If you factor in actual devaluation of the dollar and backfill inflation for the peak figure reached in the third quarter 2007, however, you get back to a phenomenon I have been tracking for several years– household net worth has basically been moving sideways since the real estate correction began. 

I used to have a teacher who claimed you could get at least a B-minus on a history assignment if you started it out by saying, "It was a time of transition; traditional values were being called into question; and the middle class was on the rise" – the idea being that these high-minded phrases were applicable to virtually every historical period. 

Something similar is going on with household net worth, which always stays the same distance from the 2007 peak no matter which way the numbers move. From a previous post by me:

"For some time now I have been tracking the question of how much value the private sector has lost since the peak. The interesting thing is that since the trough of household net worth in the first quarter of 2009 ($17 trillion off the peak), we have not come close to returning to pre-recession levels of wealth. In fact, the thumbnail that we're now $5 or $8 trillion off the peak recurs in quarter after quarter. It's like one of Zeno's paradoxes or a going-out-of-business sale at an Oriental rug store. We're always $5 to $8 trillion away from the return of the good times."

True to form, the current Flow of Funds report indicates that household net worth peaked at $65.1 trillion in 2007. This fall it dropped to $57.4 trillion. That leaves us $7.7 trillion below the peak, and right where we were on the road to nowhere. 

Note that the original Q3 2007 report [pdf] only had household net worth at $58.6 trillion, which would put us only $1.2 trillion off the peak. These data get revised as better numbers come in and older figures get adjusted for inflation, but even so, adding $6.5 trillion to the 2007 figure since the original report is significant: an inflation of 11 percent over four years. That's far beyond standard inflation adjustment, which has been about 5 percent over that period and would put the Q3 2007 figure at only $61.5 trillion. Where did the remaining $3.6 trillion come from? 

Just pointing that out on the eve of a substantial revision from the National Association of Realtors – the only organization less credible than the Fed – that is expected to reveal existing home sales from 2007 on were much lower than the NAR previously claimed. 

There's one piece of potential good news in the current report. The equity portion of U.S. real estate has increased by nearly two percentage points – to 43.5 percent – in the last year. The equity portion, which measures how much of your house you actually own rather than owing, has been falling for decades. 

But the trend has reversed in the last year. We're now looking at four straight quarters during which the equity percentage increased and the mortgage percentage decreased. (Check my math: I'm subtracting item L.218, "Home Mortgages," from "real estate" under item B.100, "Balance Sheet of Households and Nonprofit Organizations".) Since there are few or no regions of the country where this positive trend can be explained by inflation of real estate prices, this looks like a return to thrift and winnowing of bad debtors. 

The appealing thing about this deleveraging is that it thwarts all the plans of the inflationary elite. But it's incredibly painful to be paying down the debt on a real asset whose market price continues to fall. Getting into a better equity position may be good for you or your heirs over the long term that exists everywhere except in Keynesian theory. But it stinks like foot and ass when you're going through it. 

Comments

[Joe M]

Mmm, nothing like hot dogs over an open bucket fire.

[Scott]

I could barely read the article with that sexy hobo distracting me. My thought process:
1. Could I really live like that?
2. Does he actually have to tie is hat to his coat so it doesn't get stolen?
3. Where do I find such a hobo so that I may learn these innovations?

[Name Nomad]

The cord between the hat and the coat is just a dummy cord. If it falls off, he'll still drag it along and can find it in the dark easily. He must have spent time in the Army.

[Gojira]

Alt-text win. Excellent job, sir, excellent job.

[Matthew]

My home is worth 34% less than when I bought it in 2007 according to the most recent tax assessment. Then again, everyone else in my condo Assoc. is underwater as well, by about the same amount.

[Enough About Palin]

Mine has lost more than 50% of it's value in 3 years. Fortunately, I own it free, clear and unencumbered.

[Apatheist]

Or maybe your home was overvalued when you bought it in 2007?

[Enough About Palin]

Oh I have no doubt it was overvalued in 2007, but fortunately for me, I inherited it back in 1987. 2012 will be the first year ever that my property taxes go down, though surprizingly, not by 50%.

[robc]

According to zillow (tee hee), my house has dropped 1.2% in value since I bought it in 2007. This is up a good bit since very recently, but the house next door to me recently sold, so I guess that affected things.

I bought with 49% down, so Im not really concerned.

[me/dwc]

Not on topic, but I need to stick this somewhere. Many of you probably check out LRC anyway, but this is a real nut punch. I would think that Reason may want to weigh in on this as well. It gives new meaning to the expression "fucking pigs".
http://www.lewrockwell.com/blo.....01226.html

[Joe M]

Care to give a summary? Lew's site is blocked for me.

[Banjos]

Killer's buddies assault the relative of a victim

Daniel Hiler ran out of gas during an evening motorcycle ride in Oildale, California on December 16. While walking his bike to a gas station, the twenty-year-old father of two ran into a family friend named Chrystal Jolley. The pair was crossing a street at a widely-recognized intersection when they were fatally blindsided by a vehicle traveling at a speed well in excess of the posted speed limit. Despite the fact that darkness had descended, the driver hadn't turned on his headlights. The victims were killed instantly.

Within minutes, police swarmed the scene, and arrests were made ? none of which involved the driver, Deputy John Swearengin of the Kern County Sheriff's Office. The four people arrested were relatives of the victims, who got into what the Sheriff's Office described as an "altercation" with California Highway Patrol officers when they attempted to identify the victims.

"I was at home on Friday night working on my car when someone came running over and told me that a deputy ran over my daughter in the street," recalls Jimmy Clevenger, Jolley's father. "I ran down here, I was very upset?. The next thing I know, they had me by the neck and threw me to the ground and said I resisted arrest. My daughter was dead in the street and it was their fault."

The outraged relatives were taken to jail, and face criminal charges. Swearengin, the killer, was taken to the hospital and wasn't compelled to undergo drug or alcohol screening

The posted local speed limit (for Mundanes, of course) is 45 miles per hour. According to several on-scene accounts from horrified witnesses, Swearengin blew through the intersection at a speed of 75?90 miles per hour. Despite the fact that he was obviously in a hurry, Swearengin didn't activate his siren or running lights ? or, according to at least one eyewitness, his headlights.

Sheriff Donny Youngblood told the Bakersfield Californian that the deputy "was responding to a report of a stolen vehicle with a suspect still at the scene" when he struck his victims. This would mean that he was not involved in a high-speed pursuit. Furthermore, as some skeptical witnesses pointed out, the main office of the Sheriff's Department is about a mile or two west of the intersection where Swearengin killed Hiler and Jolley ? and he was headed that direction at the time of the incident. This suggests that the deputy wasn't motivated by an urgent call from an isolated and over-matched comrade, but rather engaging in a favorite pastime of uniformed adolescents ? "Kickin' ass and drivin' fast."

Some residents of Oildale, a suburb of Bakersfield, describe the Kern County Sheriff's Deputies as notorious for their habit of speeding through the town's narrow streets, blithely ignoring speed limits without bothering to activate their lights or sirens.

"They have no consideration for the other public," objects Michelle Cameron, a distant relative of Jolley. Her assessment is seconded by Forrest Faulkner, an 11-year resident of Oildale who claims to know and be on good terms with most of the department. "They're great people," Faulkner maintains, even as he criticizes the department's habit of putting the public at risk by needlessly reckless driving. "I've seen sparks fly from the car's undercarriage when they hit a dip," Faulkner recounts.

Under section 192 [c][2] of California state law, the deaths of Hiler and Jolley resulted from an act of vehicular homicide -- one involving "gross negligence," and therefore a felony. No charges have been filed against Swearengin, and the deputy faces only an "administrative" inquiry, rather than a criminal investigation. The outcome of the administrative procedure isn't exactly shrouded in mystery.

"What gets me is we already know the outcome," complained Anna Rodriguez, one of Hiler's friends, to a local reporter. "The officer will go on paid suspension. Then they will say he didn't do anything wrong. And that will be the end of it."

[EDG reppin' LBC]

We had one of those under very similar circumstances. I am having a hard time finding the follow up articles, but essentially the cop was going 70 mph down a city street, pre-dawn, light fog, no lights, no headlights, no siren. First the LBPD tried to spin it as a suicide. Then they tried to spin it as a tragic accident. No punishment for the cop. LB taxpayers were on the hook to the family for $500k. Stay classy law enforcement.

[Enough About Palin]

It says Deputy John Swearengin might have fucked some sheep on occasion, but they're not positive.

[Libertymike]

Reason just does not have a William Norman Grigg on its staff. As great as Balko is, he can't hold Grigg's jock.

LRC is reliably libertarian; Reason, not anywhere near as reliably libertarian as LRC.

[Paul]

A John Birch Society guy is reliably libertarian?

[Apatheist]

COCKSUCKER!

[Juice]

Don't worry, I'm sure several years from now the feds will charge the officer with a violation of civil rights.

[Gimlet]

He always says, "Excuse it, please."
He climbs into his neighbor's garden,
And smiles, and says, "I beg your pardon";
He bows and grins a friendly grin,
And calls his hungry family in;
He grins, and bows a friendly bow;
"So sorry, this my garden now."

- Ogden Nash

[Paul]

. But it's incredibly painful to be paying down the debt on a real asset whose market price continues to fall.

And yet people have been doing exactly that for decades when they buy a car.

If people get over the fact that when they buy a house, it may or may not be an investment, but a purchase that will put a roof over your head until you either sell it, or die holding the paper, things will get easier.

[Tim Cavanaugh]

Buy Edsel. They ain't making any more of the stuff.

[Paul]

The Wisdom of Tony Soprano is much underrated, in my opinion...

[fishfry]

This doesn't have anything to do with Zeno's paradoxes. Even what you described doesn't make sense ... that the numbers always stay a certain distance away from 2007. Something about this article didn't really make any sense at all.