Real Estate's Return to Earth Could Hurt

Scott Burns is always throwing down solid wisdom. He looks at the real estate market and finds the following:

The US has gained $9.4 trillion in net worth — nearly 25 percent — from the 2002 bottom.

The largest source of gain? Home values, up $4 trillion. (This compares with a $1.3 trillion gain in the value of corporate equities and a $1.3 trillion gain in the value of mutual funds.)

Examining the same data back to 1952, I found that:

• Residential homes are the highest percentage of our collective net worth they have ever been, 36.3 percent.

• We have been borrowing at a prodigious rate, with mortgages equal to 43.7 percent of home value. That's only a bit less than the record 44.2 percent set in 2004.

• We reached a record for the value of homes compared to the value of our financial assets, 48.5 percent.

Compared to the median values of the past 50 years, these are big shifts. Viewed statistically, values are at extremes.

The bottom line: Collectively, we're heavily mortgaged in a period of extreme prices. The return to more normal prices could be as painful at the Great Texas Real Estate Crash.

Via The Seattle Times