by Calculated Risk on 9/18/2010 05:10:00 PM

The Federal Reserve released the Q2 2010 Flow of Funds report yesterday: Flow of Funds.

According to the Fed, household net worth is now off $12.3 Trillion from the peak in 2007, but up $4.7 trillion from the trough in Q1 2009.

Click on graph for larger image in new window.

This is the Households and Nonprofit net worth as a percent of GDP.

This includes real estate and financial assets (stocks, bonds, pension reserves, deposits, etc) net of liabilities (mostly mortgages). Note that this does NOT include public debt obligations.

Note that this ratio was relatively stable for almost 50 years, and then we saw the stock market and housing bubbles.

This graph shows homeowner percent equity since 1952.

Household percent equity (as measured by the Fed) collapsed when house prices collapsed in 2007 and 2008.

In Q2 2010, household percent equity (of household real estate) was up to 40.7% from the all time low of 36.1% in Q1 2009. The increase was due to both an increase in the value of household real estate and a $49 billion decline in mortgage debt.

Note: something less than one-third of households have no mortgage debt. So the approximately 50+ million households with mortgages have far less than 40.7% equity.

The third graph shows household real estate assets and mortgage debt as a percent of GDP.

Mortgage debt declined by $49 billion in Q2. Mortgage debt has now declined by $463 billion from the peak. According to an analysis by the WSJ, most of the decline in debt has been because of defaults, see: Defaults Account for Most of Pared Down Debt

As house prices decline further, I expect the percent equity to decline and household net worth to fall.