Many economists are looking at income and wealth patterns to understand why, especially in the United States, the rich have grown wealthier over time while the middle class has grown less financially secure.

New York University’s Edward N. Wolff, tracking the distribution of household wealth over a half century, concludes that inequality has been fueled by a sharp increase in middle-class borrowing.

Median household wealth made steady gains after the early 1960s but suffered a painful reversal of fortune in the Great Recession, Wolff details. From 2007 to 2010, median household wealth fell a steep 44 percent, leaving it below its 1969 level. (Wolff equates wealth with household net worth, or marketable assets minus debts.)

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Analyzing data from the federal Survey of Consumer Finances from 1962 to 2016, Wolff finds that gains mostly flowed to wealthier households. From the early 1980s through 2016, more than 97 percent of the gains in total household wealth went to the top 20 percent. The bottom 60 percent of households did not pocket any wealth gains between 1983 and 2016.

Instead, “the debt of the middle class exploded from 1983 to 2007, already creating a fragile middle class.” Then came the Great Recession. Asset prices recovered after 2010.

The wealth gap accelerated after the most recent recession, when the top 20 percent of households saw their share rise from 85 to 90 percent. The top 1 percent of households with the highest net worth saw their share of the wealth pie increase from 35 percent in 2010 to 39 percent in 2016. More wealth concentrated in fewer households left median household net worth 34 percent below its 2007 peak, despite both housing and stock prices surpassing their pre–2007–10 financial crisis highs.

The culprit, Wolff says, was the era of easier home financing that peaked in 2007, and the subsequent fallout during the crisis. “The sharp fall in median net worth and the rise in overall wealth inequality over these years are largely traceable to the high leverage of middle class families and the high share of homes in their portfolio,” he writes.

At the height of the housing and stock market run in 2007, nearly 77 percent of the middle class owned a home, compared to 72 percent in the 1980s. But these households owned less of their homes outright. In the 1980 surveys, mortgage debt represented less than 40 percent of a home’s value for the middle class; in 2007, it was nearly 47 percent, driven by the expansion of low-down-payment primary mortgages and an explosion in home-equity lending.

The middle-class appetite for mortgage debt exceeded its appetite for other types of consumer debt. “In constant dollar terms, the mean debt of the middle class shot up by a factor of 2.6 between 1983 and 2007, mortgage debt by a factor of 3.2, and other debt by a factor of 1.5,” Wolff writes.

This heightened housing leverage exacerbated the impact of falling home values between 2007 and 2010 and contributed to a decline in homeownership among this cohort. During this time period, the eye of the financial storm, net worth for the middle class declined by an average of 11 percent a year. By 2016, the homeownership rate for the middle class was 67 percent, nearly 10 percentage points lower than it had been in 2007.

Wolff’s argument dovetails with that of Princeton’s Atif Mian and Chicago Booth’s Amir Sufi, whose research also finds a link between debt, specifically housing debt, and inequality. (For more, see “How high debt leads to income inequality,” July 2014.)

“The key to understanding the plight of the middle class over the Great Recession was their high degree of leverage and the high concentration of assets in their home,” writes Wolff.

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