by Calculated Risk on 12/08/2011 12:01:00 PM

The Federal Reserve released the Q3 2011 Flow of Funds report today: Flow of Funds.

The Fed estimated that household net worth declined $2.4 trillion in Q3. Household net worth peaked at $66.8 trillion in Q2 2007, and then net worth fell to $50.4 trillion in Q1 2009 (a loss of $16.4 trillion). Household net worth was at $57.4 trillion in Q3 2011 (up $7.0 trillion from the trough, but down $2.4 trillion in Q3).

The Fed estimated that the value of household real estate fell $98 billion to $16.1 trillion in Q3 2011. The value of household real estate has fallen $6.6 trillion from the peak - and is still falling in 2011.

Click on graph for larger image.

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.

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 fell sharply in 2007 and 2008.

In Q3 2011, household percent equity (of household real estate) was at 38.7% - about the same as in Q2.

Note: about 30.3% of owner occupied households have no mortgage debt as of April 2010. So the approximately 52+ million households with mortgages have far less than 38.7% equity - and, according to CoreLogic, about 10.7 million households have negative equity.

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

Mortgage debt declined by $54 billion in Q3. Mortgage debt has now declined by $730 billion from the peak. Studies suggest most of the decline in debt has been because of foreclosures (or short sales), but some of the decline is from homeowners paying down debt (sometimes so they can refinance at better rates).

Assets prices, as a percent of GDP, have fallen significantly and are only slightly above historical levels. However household mortgage debt, as a percent of GDP, is still historically very high, suggesting more deleveraging ahead for households.