US Household Wealth Increases and Home Values Play an Important Role


by JOSH ZUMBRUN, Wall Street Journal

U.S. households collectively reached a record net worth of $89.1 trillion in the second quarter, but behind that improvement were a wide range of outcomes for households digging out of an economic downturn over the past decade.

The latest snapshot of American wealth, released Friday by the Federal Reserve, marked the third straight quarter in which household wealth reached a new high, generally driven by a strong stock market and rising home values. Since the first quarter of this year, wealth in stocks and real-estate equity increased half a trillion dollars each, according to the central bank’s quarterly report measuring the aggregate wealth of U.S. households and nonprofit organizations.

The data underscore the U.S. economy’s round trip over the past decade, from a housing bubble to a deep recession to a long and slow recovery that, while impressive in aggregate, has left many households behind.

“The winners in recent years aren’t the same people who lost out in the crash,” said Ian Shepherdson, chief economist at Pantheon Macroeconomics.

.trillionTHE WALL STREET JOURNALNote: Indirectly-owned stocks includes retirement and life insurance accountsSource: Federal ReserveRecessionWealth EffectsThe major components of U.S. household wealthReal estate equityDepositsDirectly-owned stocksIndirectly-owned stocks1996’98’00’02’04’06’08’10’12’14’$17.5

Home prices peaked in 2006 and stocks peaked in 2007. Both plunged sharply as the U.S. collapsed into recession at the end of 2007.

But for those who held on through the crisis, prices have gradually rebounded in recent years. Stocks began to climb sharply in 2009 and by 2013 household wealth in stocks had reached a new peak.

Household net worth is the sum of all assets, such as homes, stocks, bonds, vehicles and cash, minus all debts like mortgages, credit cards, student loans and auto loans.



The Fed’s report provides no information about how assets are distributed among households, but a relatively modest share of the stock market is owned by middle-income households. Edward Wolff, an economist at New York University, has estimated that as of 2013, about 90% of stocks and mutual funds were owned by the wealthiest 10% of households.

Much of the middle-class stock wealth that does exist is tied up in retirement accounts, which are considered indirect holdings and may be largely off limits for years or decades.

Home equity, however, is a different story. Mr. Wolff estimates 60% of the wealth in principal residences is held by those outside the top 10%. While the homeownership rate has declined in recent years, about 63% of homes still are owner-occupied.

Those homeowners “benefit from a broad increase in home values—homes are much more broadly owned by the middle class than stocks,” said Frank Nothaft, chief economist of real-estate-data provider CoreLogic.

Yet even among homeowners, not everyone has benefited evenly from the recovery.

More than three million homeowners remain underwater on their mortgages, according to CoreLogic data. At the worst part of the housing bust, nearly 12 million were underwater, meaning they owed more on their mortgages than their homes were worth.

Some families have seen price increases and mortgage payments push them back into positive territory. CoreLogic estimates that about 548,000 homeowners regained equity in the second quarter. Other families, however, lost their homes to foreclosures. RealtyTrac estimates that in 2009, a record 2.1 million foreclosures were initiated.

In many of the cities that experienced the largest housing bubble, home prices remain far below levels once seen. Home prices in Las Vegas are down 36% from their record, according to the Case-Shiller home-price index, for example. In Phoenix, prices are nearly 30% below their peaks. Home prices in Miami remain nearly 25% lower.

A different group of cities has thrived this time. Cities with home prices that have fully recovered from the crisis and gone on to set new records include Dallas; Denver; Charlotte, N.C.; and San Francisco.

Also contributing to household net worth is a steady increase in the level of deposits U.S. households keep at banks. Deposits, such as checking and savings accounts, were a record $10.9 trillion in the second quarter.

The Fed’s report includes nonprofit organizations in its totals, but nonprofits own a small amount of assets compared with households.

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