US household wealth at record high

US household wealth reached a record high during the summer of 2013, mainly due to recovering house prices and an appreciating stock market, according to the US Federal Reserve.

During the third quarter of 2013, US household wealth increased to $77.3 trillion. The country has recouped all the wealth it had lost during the Great Recession. In 2008, US household wealth fell to $57.2 trillion.

However, the figures have not been adjusted for inflation, which if factored in would place US household wealth at approximately 1% below pre-recession levels. Economists expect the 1% will be regained during the fourth quarter of this year.

When households feel wealthier they tend to spend more, which boosts the country’s GDP growth. These latest figures bode well for 2014 economic growth.

Household wealth, or household net worth, refers to the value of a person’s house, shares, money in the bank and other assets, minus debts, such as mortgages and money owed to credit card companies.

Total mortgage debt increased by 0.9% during the third quarter of 2013 compared to the second quarter, the largest rise since the second quarter of 2009. Economists say this is an encouraging sign, it means that there are fewer mortgage defaults and more home sales.

Non-mortgage consumer debt, including credit cards, car loans and student loans, increased by 6% during the summer.

During the third quarter of 2013, US household debt was boosted by:

  • Stock prices, which increased by $917 billion.
  • Higher property prices, which increased by $428 billion.

In this quarter (Q4) the stock market has continued rising, as have property prices.

According to the Fed report, Americans are now willing to borrow more than earlier on this year or in 2012, reflecting greater confidence in job prospects and security as well as the overall economy.

US Household wealth unequally distributed

The richest 10% of households own four-fifths of all stock market shares.

The percentage of Americans owning their own homes has fallen since the Great Recession started, especially among lower-income households.

Reactions by Economists

The Wall Street Journal quotes Mark Vitner, a Wells Fargo Securities senior economist, who said “We seem to be gaining momentum in a more significant way and more areas of the economy are improving. That increases the chances we will have a real recovery ahead of us.”

Paul Edelstein, director of financial economics at IHS Global Insight, said in an interview with CBS News that “the question is whether this is a positive or negative development for the economy. A lower debt/income ratio could make it easier for households to spend. But the declining ratio could also be a sign that households are now less willing to maintain high debt loads after the crisis.”

Referring to who primarily would benefit from greater household wealth, Jacob Oubina, senior economist at RBC Capital Markets in New York, said to The Fiscal Times that “from a consumption perspective, it is actually going to be limited to folks who hold equities that are feeling the biggest share of the increase in net worth. Americans still have a long way to go to get to full financial health.”