U.S. housing value down at least $4 trillion

If you've recently had your house reappraised for sale or refinancing, and wonder where the equity went, consider this:

Since the real estate boom ground to a painful close about 31/2 years ago, the nation's housing stock has shed from about $4 trillion to $7.1 trillion in value.

The amount depends on who's counting. A study by Equifax Inc. and Moody's Analytics Inc. says the downturn began in early 2007 and cost $4 trillion through March. The Federal Reserve says the downturn began in the fourth quarter of 2006 and cost $7.1 trillion through March.

To put a $7.1 trillion loss of housing values into perspective, if you bulldozed half-million-dollar McMansions until their cumulative lost value equaled $7.1 trillion, you'd level 14.2 million homes.

Psychologically, this massive loss of equity has changed - at least for now - the view of homeownership as a major source of wealth.

"The perception of homeownership as a wealth builder has suffered a deep setback," said Center City developer Carl Dranoff. "People are still buying, but not necessarily as investments."

Younger people especially "are probably going to be more likely to rent, to move to take the best job, and to treat home as a place to live, rather than as an investment," said Holden Lewis, of Bankrate.com.

"If I'm right, I wonder how long these attitudes will linger?" Lewis asked.

It will not be tomorrow or the next day, because most economists, including Mark Zandi, chief economist at Moody's Analytics, of West Chester, say they believe that prices will continue to decline until, at worst, 2011's second quarter.

"It will likely take a good, solid decade for this nightmare to fade," Zandi said.

IHS Global Insight Inc. economist Patrick Newport is "not optimistic about future bubbles" because "our collective memories are short."

"We had a commercial real estate bubble during the late 1980s and another from 2005 to 2009," he said. "These seem to recur every other generation."

The one positive in this gloomy picture comes from the Case-Shiller Index, which last week showed a 1.3 percent increase in home prices in June, primarily as a result of sales motivated by the tax credit.

The Case-Shiller numbers, however, overstate market strength, said Michael Federer of RadarLogic in New York.

"We have a growing concern that homeowners are expecting that the large inventory of homes for sale . . . is going to cause prices to continue to decline," Federer said.

By the time it is over, Zandi said, the damage will total 35 percent of fourth-quarter 2006's peak prices.

The effects of a cumulative $7.1 trillion drop in equity are obvious: Whole neighborhoods in the Southwest and Florida in foreclosure; and lenders declining to refinance mortgages in some areas, or originate ones in others.

Still, the perception that homeownership is bane not boon will be short-lived, said Thomas Meyer, chief executive officer of J.I. Kislak Mortgage, of Miami.

"Each market is different, each will recover in their own unique fashion and according to their own specific timeline," he said.

Even Meyer said he believed it would take five to seven years.

The hits keep on coming.

CoreLogic Inc., of Santa Ana, Calif., reported that negative-equity home loans in the second quarter accounted for nearly 23 percent of all residential properties with a mortgage nationwide - there are about 45 million of those.

"Defaults will remain at a high level for an extended period," said Mark Fleming, CoreLogic's chief economist.

The experts - and many homeowners, too - say they believe that looking at your front door through dollar signs is wrongheaded from the start.

Homeowner Arden C. Hander of Meadowbrook, a retired college professor who has owned his house since 2003, is one.

"A house is a vehicle for satisfaction, not for establishing wealth," he said. "You'd better be going to live in the house you buy for a long time and put 'how much it's worth' out of your mind," he said.

That way, "should there be a drop in a selling price or worse yet, deflation, you won't be looking for a bridge or high building to jump off of," Hander said.

Janet Conradi, who teaches design at Rowan University, bought her most recent house in Pitman a year ago.

"My family has viewed real estate as a home, not as a moneymaker, and I am most comfortable with that attitude," Conradi said.

Conradi acknowledged that she had tried to buy carefully, take good care of and improve her house, "hoping that doing so would provide a positive financial result if and when it was sold."

"I never intended to make a wad of money by speculating in real estate," she said.

Realtor Noelle Barbone said her experience "tells me that property ownership will always create wealth for people - providing they pay attention to the financial strategy they use to purchase it."

This includes making sure "they leave a little wiggle room for unforeseen expenses, and have enough money to maintain that investment," said Barbone, of Weichert Realtors in West Chester.

Given that "we have never been in this situation, it is hard to say when people will trust that homeownership is a good deal and creator of wealth," said Freddie Mac economist Amy Crews Cutts.

"On the other hand, it will depend, too, on what else is available for building wealth," she said.

Right now, Zandi said, what's available are "bonds."