By Walter Russell Mead
The news from the housing market this week is bad. Really bad. House prices today are lower in most of the country than they were in the dismal month of April 2009; we are now in the second dip of the double dip housing downturn.
This doesn’t just mean that President Obama’s re-election is in trouble. It doesn’t just mean that stocks and the dollar may fall. It doesn’t just mean that unemployment will stay high for a while and that whole economy may follow the housing market back into the tank for a second recession.It means something bigger. For eighty years we have defined the American dream as an owner occupied family home, preferably with a nice swathe of crabgrass-free lawn around it. The home mortgage was the centerpiece of a society of consumers based on debt-financed living. It was life on the installment plan. The latest downturn in the housing market is one more grim signal that in its current form, the American Dream is going the way of the dodo.
A home of your own increasingly means a home of the bank’s. Today some 86 million Americans live in homes that are ‘under water’ where the amount owed on the mortgage is greater than the value of the house. Since the financial crisis began in 2008, over one million consumer mortgages have gone into foreclosure. Sales of bank-owned properties are now 34.5 percent of the housing market; homes in foreclosure waiting for resale now account for a three years-supply on the sluggish housing market.
The damage is heavy. For most Americans, their single biggest asset is the equity in their home. At the peak of the boom, total net home equity in the US (the value of owner occupied homes minus the remaining mortgage debt) stood at 13 trillion. Today it is down to $6.5 trillion. America’s home equity losses are greater than the GDP of Japan.
