Fed Calls Gain in Family Wealth a Mirage

From:

http://www.nytimes.com/2009/02/13/business/economy/13fed.html?em

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WASHINGTON — The leap in wealth that Americans thought they were enjoying over the last several years has already turned out to be a mirage, according to new estimates by the Federal Reserve.
In its triennial survey of consumer finances, released Thursday, the Fed found that the median net worth of American households increased by a seemingly healthy 17 percent between the end of 2004 and the end of 2007. But the gains were wiped out by the collapse in housing and stock prices last year. Adjusting for those declines, Fed officials estimated that the median family was 3.2 percent poorer as of October 2008 than it was at the end of 2004. The new survey offers one of the first glimpses of how American families were positioned financially as the roof fell in on the economy, and it provides some sense of how much wealth has been destroyed since then. Indeed, the destruction of wealth is still in full swing: housing prices are still falling, more than two years after the bubble peaked.
The survey suggests that the boom years were not all that wonderful even before the crisis set in. And it indicates that many households will have to greatly increase savings rates, which were below 1 percent, to make up for some of the lost wealth.
Adjusted for inflation, the median household income actually edged down slightly over the three years ending in 2007. The mean, or average, household income jumped by a respectable 8.5 percent.
But a growing share of that income came from investment profits rather than from wages and salaries. And the wealth that Americans were building was overwhelmingly in the form of paper profits that vanished as quickly as they had appeared.
Fed analysts estimated that 35.8 percent of the average family’s assets in 2007 were in “unrecognized capital gains,” such as gains in the market value of houses that people had yet to sell. Slightly more than half of those unrecognized gains came from real estate, and the second biggest source was increases in the value of business assets.
The Fed’s estimates, which are based on a survey of 4,422 households, are in line with estimates that economists have made about the aggregate plunge in wealth since the housing bubble began to deflate in 2006.
Dean Baker, co-director of the Center for Economic Policy Research, estimated that the United States had lost $6 trillion in housing wealth since the peak of the bubble.
The Case-Shiller index of housing prices in 20 major cities, considered one of the most accurate barometers of such prices, has declined about 25 percent since mid-2006. On top of that, Mr. Baker estimated, an additional $6 trillion evaporated as a result of the plummeting stock market, for a total loss of $12 trillion since 2006.
“I’m actually surprised that you didn’t see higher values on stock holdings,” Mr. Baker said, noting that the median value of household stocks, adjusted for inflation, was slightly lower in 2007 than it was in 2001.
“Even when we were near the peak of the bubble, things didn’t look that good, and they’re looking worse today,” he said.

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Ok... article is self explanatory... but let's look at MALAYSIA now, for those of you who think this problem is confined to USA.

Let's take the, for instance, the working professionals between 20 and 35. What do you think the networth for these individuals is?

On average: slightly above 0.

Yes, you heard me right... slightly above ZERO.

But, look, you will say to me, they've got jobs and make quite a decent living, they live in their own houses, how can their average networth be so low?

Let me ask you this.

Most of these guys... let's liquidate all their assets. And use these proceeds to pay off all their debts. How much do you think that will come to?

...

It's going to be slightly above zero. Sure, you will have those who have some savings, but it won't be all that much. Their is the insurance too, but that hasn't reached a very high figure yet. You know that car that they bought? It has actually lost 30% of it's purchase value.

The major gain for most people in Malaysia for this agegroup is their houses/ apartments, actually. Like, how they bought it for 200k and it's worth 250k now.

I would estimate that the average household networth for Malaysians in the 20-35 agegroup would be under 100k.
And I would estimate that is under current market housing prices. Out of that 100k, I would say that 40k is from UNREALISED CAPITAL GAINS. We've got around 40%, compared to America...

Of course, I have absolutely no official figures to back me up on this, but, this is Malaysia, we don't have any government bodies which conduct this sort of stuff.... nor would our government want it so!

Malaysia Boleh... except when it comes to Transparency, in which case, it is very very much a case of Malaysia Tak Boleh!