Middle Class Didn't Lose as Much Wealth as Thought, Scott Winship of Brookings Institution Says

middle class wealth
middle class wealth

Americans are richer than they might think, though it may not seem like it.

The Census Bureau recently released data that indicated a drop of more than 35 percent in median household wealth between 2005 and 2010, while the Federal Reserve released a survey weeks ago that found that median net worth plummeted by 39 percent from 2007 to 2010.

The reports paint a grim picture of the state of the middle class, but the degree of the wealth decline that they suggest, when taken in context, may not be close to as bad as it seems.

That's because wealth levels in the early- and mid-2000s were largely "illusory" and based on a false belief, some experts say, that Americans' homes were actually worth their housing-boom values.

"The bursting of the bubble exposed the wealth gains as having been unreal and produced the sizable declines in net worth revealed in the government data," wrote Scott Winship, a fellow in Economic Studies at the Brookings Institution, in a recent opinion piece titled "Middle Class Wealth: It's Not as Bad as It Looks."

A cascade of foreclosures and an excessive supply of homes -- which are both symptoms of a manic housing market once wedded to the notion that home prices would never fall -- have pushed down home values by more than a third. The severe drop in prices, many argue, suggests that homes never should have been considered as valuable as they were.

If you ignore home values, middle-class household wealth has flat-lined since the 1980s, according to data from the Fed and the Census Bureau.

While it's not music to anyone's ears that average Americans are perhaps no richer than they were 25 years ago, the fact that we are not much poorer might also seem a wonder to some. After all, the country just weathered the greatest economic calamity since the Great Depression.

The idea that the "golden years" of the 1950s, when the post-World War II economy steamed full-speed ahead, were the halcyon days of America's middle class is a myth.

At least, if prosperity is measured by wealth, median household wealth is 15 percent higher than it was in 1970, according to Winship, and median income has doubled since 1960.

"A lot of people will say the 2000s were a lost decade," Winship told AOL Real Estate. "But it's still the case that, because of all the growth that preceded it, we're just much better off than we were during the golden age."

Current estimates also may low-ball household wealth because they do not count senior entitlements, including Social Security and Medicare, which have grown more generous over the years. Federal Reserve Board research shows that if they were included, median net worth for adults under age 65 in 2010 would have been at least four times higher than wealth estimates based on the standard definitions of net worth used by the Census Bureau and the Fed, Winship said.

See also:
90% of Bank-Owned Homes Held Off Market, Estimates Suggest
Underwater Mortgages Keeping Housing Market Afloat?
Hoping for Blockbuster Sale, Home Gets Hollywood Treatment

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