For the last several years there has been a conservative, libertarian meme that the drop in the savings rate did not matter because the growth in the value of peoples homes substituted for savings.
Even if this was good economics to begin with and did not ignore the point that wealth is a stock and savings is a flow, mortgage debt now accounts for over half of total real estate value. Homeowners now own less than half of their homes free and clear for the first time since this data was collected. Mortgage debt as a share of real estate value has approximately doubled over the last twenty years.
But if the bulk of the gains in home values during the bubble has been offset by the growth in mortgage debt how does the portion of the increase in value that is offset by increased mortgage debt count as savings ?
Sorry, I took the chart out of the NY Times and could not separate the two charts even though the second chart is not part of my question.