To some considerable extent this decline is not a decline in real wealth, it’s a decline in an illusion.
Some significant percentage, my inexpert estimate around 50%, is the bursting of the bubble. Bubbles, by definition, do not represent actual wealth, they’re merely an illusion.
If you happened to sell out at the height of the bubble, then it was real. But there is, also by definition, no way everybody could sell out at the right time. Therefore most people are going to get caught when the bubble pops.
So we thought we were a lot richer than we were.
Even this situation goes hand in hand the "illusion". Real money went to the buyer, but the other side of that transaction turned out to be just bits shuffled from lender to Fannie Mae to a line in Stimulus (or "Porkulus") to their final resting place in the Federal Reserve's balance sheet, like the tortured souls captured by the Ghostbusters, fighting each other in the Containment Unit for eternity.
“If you happened to sell out at the height of the bubble, then it was real.”
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Yes, for the person selling it was real but what many people don’t understand is that even if you were lucky enough to sell at the top that may have increased YOUR real wealth but the total wealth of the nation did NOT increase. Your gain is offset by the loss of the buyer. I once stated on FR that the constantly increasing appraised value of housing that was happening at that time DID NOT represent an increase in total wealth in the real world. I was called several different kinds of a fool by certain FREEPERS for that statement but I still stick by it. Likewise the drop in housing prices did not represent a real loss in total wealth of the nation. The house is the real wealth and the house is still there. As long as a house is being sold AND PAID FOR any loss to the seller is offset by a gain to the buyer and vice versa. It is only when houses and commercial buildings sit empty and fall into disrepair that there is a REAL decline in total wealth, that is going on now. As I drive around my area I see more and more empty buildings and empty houses. A house can only sit empty and untouched for so long and it starts to fall down. A few leaks begin and in this humid climate the rot begins rapidly. The total real wealth in my community is dropping and dropping rapidly, of this I have no doubt.
In short, barring outside inputs from other nations such as when oil wealthy little nations are able to simply let oil companies from other nations come in and produce oil and pay royalties is there any increase in REAL wealth from any source other than the hard work of the citizens. This is so simple that many people cannot comprehend it. We have large numbers of Americans who imagine that somehow increasing numbers are real wealth. The same people seem to think that a job is a job is a job. They think that a government job that pays $100,000. a year is equal in value to two jobs for plumbers making $50,000. a year each. It ain’t so, never has been, never will be. The plumbers preserve and or produce real wealth, the government worker in all too many cases is tasked with preventing the production or preservation of real wealth.