WASHINGTON (AP) — Falling home prices have shrunk equity so much that the proportion of their homes that Americans actually own is near its lowest point since World War II.

The Federal Reserve says average home equity plunged from more than 61 percent at the start of 2001 to 38 percent in the January-March quarter this year. That drop comes as home prices in big metro areas have reached their lowest level since 2002.

The Fed's quarterly report shows how much wealth, or net worth, Americans have gained or lost. Net worth is the value of assets such as homes and stocks, minus debts like mortgages and credit cards.

Americans' overall net worth grew 1.65 percent in the January-March period, to $58.06 trillion, because of stock market gains.

Household debt declined at an annual rate of 2 percent from the previous quarter, a sign that many Americans are focused on paying off credit. When Americans pare their debt, they have less money to spend, and that tends to slow growth. Consumers spending accounts for 70 percent of the nation's economy.

The average household owes nearly $119,000 on mortgages, credit cards, auto loans and other debt, according to an Associated Press analysis of government data. That's down from more than $125,000 in 2008.

Normally when people pay down their mortgages, they see their home equity rise. But since the housing bubble burst in 2006, prices have fallen more than they did during the Great Depression. In many cases, people are paying off mortgage interest and losing equity at the same time.

There are 74.5 million homeowners in the United States. Nearly 25 percent of those homeowners are "underwater," which means they have negative equity in their homes, according to the private real estate research firm CoreLogic. Another 25 percent are nearing that point.

People took out mortgages at a dizzying pace during the housing boom. They made up 76.4 percent of all household debt in 2007, just before the country fell into the worst recession since the Great Depression. Mortgage debt has fallen since then. But it still represents about 72 percent of household debt.

Foreclosures are driving down prices. They have turned some healthy middle-class neighborhoods into lower-income communities. Homes in foreclosure sell at a 20 percent discount on average, which hurts prices throughout the neighborhood.

Many foreclosure sales have been delayed while federal regulators, state attorneys general and banks review how those foreclosures were carried out over the past two years. Once those homes are foreclosed upon, they will cause prices to fall even further.

Home prices are expected to keep falling until the glut of foreclosures for sale is reduced, companies start hiring in greater force, banks ease lending rules and more people think it makes financial sense again to buy a house. In some areas of the country, that could take years.