Economist and former U.S. Secretary of Labor Robert Reich says the biggest continuing problem for most Americans is their homes.

"Houses are the major assets of the middle class,” Reich writes in the Financial Times.

“Most Americans are therefore far poorer than they were six years ago. Almost one out of three homeowners with a mortgage is now 'underwater,' owing more to the banks than their homes are worth on the market," writes Reich, now a professor of public policy at the University of California at Berkeley.

Editor's Note: Meltdown on Main Street Coming, Prepare Now

Home sales overall, notes Reich, are still dropping and prices are still falling – despite already being down by a third from their 2006 peak. January’s average sale price was $154,700, down from $162,210 in December.

“Optimists point to declining home inventories in relation to sales, but they are looking at an illusion,” says Reich, because those inventories don't include about 5 million housing units with delinquent mortgages, those in foreclosure, or the approximately 3 million housing units that stand vacant – foreclosed upon but not yet listed for sale, or vacant homes that owners have pulled off the market because they can’t get a decent price for them.

“We are witnessing a fundamental change in the consciousness of Americans about their homes,” says Reich, noting that at the end of World War II, houses were seen as safe investments because home values rose continuously.

In the late 1960s and 1970s, baby boomers took out the largest mortgages they could afford, and watched their nest eggs grow into ostrich eggs.

Homes morphed into ATMs, as Americans used them as collateral for additional loans. Most assumed their homes would become their retirement savings. When the time came, they would trade them in for a smaller unit and live off the capital gains.

“The plunge in home values has changed all this,” says Reich, who served in three national administrations and was a secretary of labor under President Bill Clinton. “Young couples are no longer buying homes; they are renting because they are not confident they can get, or hold, jobs that will reliably allow them to pay a mortgage.”

Moreover, middle-aged couples are underwater or unable to sell their homes at prices that allow them to recover their initial investments, cannot relocate to find employment and cannot retire.

“Under these circumstances it is not enough to rely on low interest rates and to make it easier for homeowners who have kept up with their mortgage payments to refinance their underwater homes, as the Obama administration has done,” Reich says.

“The government should also push to alter the federal bankruptcy law, so homeowners can use the protection of bankruptcy to reorganize their mortgage loans.”

Bloomberg reports that a New York Federal Reserve survey showed about 289,000 consumers showed new foreclosures on their credit reports in the fourth quarter, up 9.5 percent from the third quarter. There were 425,000 new bankruptcies, 14.9 percent less than in the last three months of 2010.

Editor's Note: Meltdown on Main Street Coming, Prepare Now