Many families are feeling a lot less affluent these days as sharp declines in the values of their primary assets, their homes, since mid-2006 have withered Americans' household wealth by $4 trillion, or by $50,000 for every household in the country.

A new study, called ''The Impact of the Housing Crash on Family Wealth,'' projects that the downturn in the housing sector could, by next year, eliminate nearly all of the wealth that families have accumulated over the past two decades. That study, conducted by the Washington, D.C.-based Center for Economic and Policy Research (CEPR), concludes that decisions homeowners have made about saving and consumption, which were based on perceptions of their own wealth, will not be easily reversed now that this wealth is diminished. The significant decline in housing wealth is most likely to have its greatest impact on owners in their 50s and 60s as they approach retirement age with few assets other than their homes.

CEPR bases its projections on data extrapolated from the 2004 Survey of Consumer Finance and its own assumptions that real house prices in 2009 will be 10 percent below the S&P/Case-Shiller Index for March 2008. (That's a pretty safe bet given that this index, which tracks existing home sales, took its biggest percentage decline ever in May.) CEPR also assumes zero net savings for households during this period.

CEPR projects that the median family in the 35- to 44-year-old age group would have only $31,300 in wealth in 2009, or 63.2 percent less than the wealth this group had in 2001 and 44.8 percent less than the median family in 1989 (which the study uses as a benchmark because that was the last time the country had a severe home-price decline).

For homeowners in the 45 to 54 age group, the fall in housing prices is projected to reduce their wealth in 2009 by 34.6 percent compared to 2004 levels. This median family's wealth next year would be only 0.8 percent higher than the median for this age group in 1989, CEPR projects. (The Center also points out that its comparison might actually be overstating the wealth of families in 2009 because it does not include in its calculation defined pension benefits, which more than half of all families had in 1989, versus 35 percent today.)

Homeowners in the 55 to 64 age group are most likely to feel the results of the decline in housing prices. Consider that, in 2004, this group's median wealth was nearly 180 percent higher than the median wealth of the age group in 1989. "The plunge in house prices since 2006 is projected to eliminate most of this gain," states CEPR. The group's median wealth is expected to fall to $138,700 in 2009 from $275,400 in 2004. This age group's wealth would still be 56.6 percent higher than it was in 1989, but much of that gain would disappear if defined pension benefits were included in this analysis.

CEPR believes that much of this wealth drain might have been avoided had the government not allowed the housing price bubble to expand unchecked. "Families will behave as though the bubble-generated wealth is real and adjust their consumption and savings behavior accordingly. As a result, tens of millions of families are likely to make wrong decisions, saving far less than they would have if they recognized the transitory nature of the bubble wealth."

John Caulfield is senior editor for BUILDER magazine.

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