Watching Our Money Disappear

The household net worth is continuing the downward slope. With so much of our net worth tied to the value of our homes, any drop in home values is a drop in net worth. Unfortunately the money owed on the properties do not fall - they stay the same or in the case with Option ARMs actually rise. This article from CNN Money about American's being $1.7 trillion poorer shows just how bad the Great Housing Bubble is deflating.

Americans saw their net worth decline by $1.7 trillion in the first quarter - the biggest drop since 2002 - as declines in home values and the stock market ravaged their holdings.

Meanwhile, the amount of equity people have in their homes fell to 46.2%, the lowest level on record.

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The recent declines, however, may not affect consumer spending, said Michael Englund, senior economist with Action Economics. Americans have actually spent more in recent months, particularly at the gas pump as fuel prices soared.

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Household debt grew by 3.5% in the first quarter, down from 6.1% in the fourth quarter. The growth of home mortgage debt, including home equity loans, cooled to an annual rate of 3%, less than half the pace of 2007. Consumer credit, which includes credit cards, rose at an annual rate of 5.75%, the same as the 2007 pace.

The fact that consumers continue to borrow against their homes, even as they decline in value, shows how troubled Americans are.

Homes are worth less and people are still borrowing. There have not been drastic lifestyle changes yet. People are using credit cards, raiding retirement funds, doing anything to retain the current lifestyle. However there are other consequences when people do cut back. Less eating out means jobs cuts in the food industry. Less shopping means jobs in the retail industry. Less vacationing means job cuts in the travel industry. And so the spiral goes.