Shortly after the New Year began, Federal Reserve Chairman Ben Bernanke sent a sobering, if not alarming, report to Congress on the state of the U.S. housing market.

Right off the bat, Bernanke told lawmakers in the first paragraph of the report just how devastating the financial crisis had been for homeowners. From early 2006, when housing prices peaked, until last year, more than $7 trillion in home equity (property value minus mortgage) was lost, representing more than half of the total that existed six years ago. At least one out of four homeowners has a mortgage that is greater than the value of their home, according to data compiled by Zillow

One is the most extreme statistics provided by the Federal Reserve is the dramatic drop in the ratio of home equity to disposable personal income (income minus taxes), which fell to 55%, by far the worst level since such figures were first calculated in 1950.

As bad as the news was about the recent past, Bernanke's remarks about the future were just as worrisome.

“The challenges faced by the U.S. housing market today reflect, in part…a persistent excess supply of homes on the market,” wrote Bernanke, who added that unless the Obama administration comes up with new policies for rectifying the glut in the market, the recovery will take even longer. Meanwhile, housing prices (which dropped 33% from 2006 to 2011) will continue to decline, “thereby prolonging the downward pressure on the wealth of current homeowners and the resultant drag on the economy at large.”

Bruce Judson at New Deal 2.0 noted that for the Fed, which is traditionally very reserved with its language, to speak in this manner is quite alarming—“comparable to the Secretary of Homeland Security holding a press conference to warn of the risk of an imminent national emergency.”

-Noel Brinkerhoff

The Foreclosure Crisis: A Government in Denial (by Bruce Judson, New Deal 2.0)