April 30, 2008

Housing decline hits family wealth

As if we needed them, two Washington-based economic research organizations have calculated new ways to demonstrate the economic havoc being wreaked by the housing market meltdown, which has hit California harder than any other state.

Dean Baker, co-director of the Center for Economic and Policy Research, slices and dices the most recent data on declining home prices and concluded that they will sharply lower the net worth of homeowners, with the greatest impact being felt in California and other locales with the steepest drops.

“In real terms, the rate of price decline in the 20-city index would imply a loss of almost $8 trillion in real housing wealth over the course of the year, an average of $85,000 per homeowner,” Baker writes in an analysis released on Wednesday.

Foreclosures have raised housing vacancy rates, Baker notes, to historic levels and dropped the nation’s rate of home ownership sharply, especially for African Americans and other nonwhites.

Picking up on that theme, the Economic Policy Institute says the decline in both home values and home ownership rates is increasing the already wide gap in household wealth between white and black families. Black wealth has been only about 10 percent of whites, on average and virtually all of the former has been in home equity, which is now declining, while whites tend to have more diversified forms of wealth, so they haven’t been hit as hard by the housing decline. The institute study described “the gap between black and white (as) incredibly wide.”

The Center for Economic and Policy Research analysis is available here while the Economic Policy Institute paper is accessible here.

Posted by Dan Walters on April 30, 2008 9:42 AM