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.