Friday, April 16, 2010

Home Equity Declines and With it Social Mobility?

Charles Hugh Smith argues that the "orgy of speculation" has eroded the primary source of wealth inheritance among the middle class. Here are key points in his argument:

"The orgy of speculation, leverage and debt incentivized by the credit/housing bubble of 2000-2006 has, in the aftermath of the bubble's bursting, destroyed most of the nation's middle-class wealth."...

That leaves about $1 trillion--a mere 1.85% of the nation's total net worth-- of equity in the 51 million homes with mortgages.

"...That is staggering conclusion, for it suggests that the bottom 80% of the nation's households which own a home have virtually no inheritable wealth left in their homes. And without that equity, what foundation of wealth is left? Their 7% share of the nation's financial wealth? That is 7% of $45 trillion, or $3 trillion, including all stocks, bonds and securities in IRAs, 401K retirement funds, savings and other accounts.."

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