Shrinking middle class could impact real estate activity

During the housing market collapse, property values declined more than 30 percent in some areas of the country.

During the housing market collapse, property values declined more than 30 percent in some areas of the country. Buying homes is the biggest investment many Americans will ever make, and this occurrence had a significant impact on consumer finances, especially the middle class.

In 1971, roughly 61 percent of households identified themselves as middle-income earners, but by 2011, this shrank to 51 percent, according to a report from the Pew Institute. Meanwhile, Americans at either end of the spectrum, those in the lower- and upper-income brackets, grew from 25 and 14 percent to 29 and 20 percent, respectively. 

"For middle-income households, a lot of wealth was in their home, so the housing bust really impacted their nest eggs," said Pew Institute economist Richard Fry. "Middle-income families are the only ones whose nest eggs have plummeted."

The mean net worth of middle-income families, which accounts for assets such as property, but excludes debt, plummeted 28 percent in 2010 to $93,150 from a decade earlier, when the average family was worth $129,582, the report said.

Future home-buying activity could suffer

Stagnant income levels could have a notable impact on the financial safety and soundness households feel toward making major investments in the future, such as purchasing property. The median household income for a family of four declined to $70,000 in 2010 from $73,000 in 2001, the report indicated. In addition, the median earning for the lower-class was $23,000, while the upper-bracket made close to $113,000. 

Property affordability still high

Although incomes declined during the past decade, housing affordability is still relatively high, according to a report from the National Association of Home Builders.

The industry group noted that during the second quarter, an estimated 73.8 percent of homes sold were affordable to households making the median national income of $65,000. However, this was a slight decline from the previous quarter, when 77.5 percent of homes were affordable to median-income earners.

"While interest rates and overall housing affordability remain very favorable on a historic basis, the decline in the latest Housing Opportunity Index is a positive development because it is another signal that the housing recovery is starting to take root," said NAHB chairman Barry Rutenberg.

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