After rising sharply through 2007, the collapse of the stock market and the sudden collapse in home prices took and immense toll on the assets of the middle class. This report summarizes what happened and why.
The most telling finding is that median wealth plummeted over the years 2007 to 2010, and by 2010 was at its lowest level since 1969. moreover, inequality of net worth, after almost two decades of little movement, rose sharply between 2007 and 2010. Inequalities rose by income class, by race/ethnicity, and across age groups.
The middle class benefited from very rapid asset appreciation during the 2001-2007 period (6.0 percent per year). But the steep drop in asset prices during the recession, particularly housing, hit the middle class harder than more affluent Americans and was the main cause of increasing wealth inequality after 2007. Similar trends are found for racial and age inequalities. Blacks and Hispanics increased their net worth relative to whites during 2001-2007 as did young adults in relation to older Americans, mainly because so much of their assets were tied up in home ownership. But these gains were wiped out durung the recession.
– Median wealth plummeted over the years 2007-2010.
– Middle class debt exploded from 1983 to 2007, already creating a highly fragile middle class. The situation worsened during the Great Recession. As a result inequality of net worth, after almost two decades of little movement, rose sharply between 2007 and 2010.
– The racial and ethnic disparity in wealth widened considerably in the years between 2007 and 2010. Blacks and especially Hispanics lost in net worth and equity in their homes.
– Young households (under age 45) also were pummeled by the Great Recession, as their wealth declined sharply in both absolute terms and in comparison with other households.
The Asset Price Meltdown and the Wealth of the Middle Class
Source: Edward N. Wolff, National Bureau of Economic Research, NBER Working Paper No. 18559, November 2012