How Much Real Estate Wealth Was Destroyed During this Downturn?
A lot! The following plots (real) household real estate value between 2000 and 2009.
Data from Federal Reserve Flow of Funds Accounts and BLS
Since the peak, the U.S. has “lost” about $8 trillion in real estate wealth – or about 33% of the value it held at its peak in 2006. However, if you break out the value of real estate into the value embedded in structures and the value embedded in land you will find that virtually all of the lost value has come in the value of land. Land values have fallen by 75% off their 2006 peak of over $10 trillion down below $3 trillion today. The aggregate value of structures has fallen far less dramatically and accounts for less than 20% of the total decline in real estate value. This should make sense coming into and out of a bubble. The supply of land is probably far more price inelastic than structures and therefore the rate of increase in land prices coming into a bubble likely exceeds the rate of increase of structures prices (ceteris paribus) and on the way down you should expect to see the rate of price decrease of land exceed the rate of price decrease of structures (ceteris paribus).