US Household Wealth +$2-Trillion in Q-3 Driven by Stocks and Real Estate
The stock market rally since 8 November 2016 drove US household net worth to a record high of $109-T in Q-3
The Fed said Thursday that the value of Americans’ stock and mutual fund holdings soared $1.2T. Home values rose $200-B. Other assets, such as bank accounts, also increased. Total net worth climbed $2-T from nearly $107-t in Q-2.
Greater household wealth can help the economy by lifting consumer spending. Yet wealth has been increasingly concentrated since the Great Recession, with just 10% of US population owning 84% of stocks.
Richer households are less likely to spend from additional wealth compared with poorer ones.
The figure reflects the value of assets like homes, bank accounts and stocks minus debts like mortgages and credit cards. The figures aren’t adjusted for inflation or population growth.
Since the July-September quarter covered by the Fed’s report, household wealth has suffered a sharp blow, and may be on track to decline in the final three months of 2018.
The S&P 500 stock market index reached a record high on 21 September, correcting through October and November.
Thursday, the S&P 500 at mid-day was 9.8% below its highs. That with in the 8-11% frame that constitutes a correction.
The increasing importance of stock ownership to building wealth, compared with owning a home, has exacerbated wealth inequality since the recession.
For most middle-class Americans, real estate ownership is the main source of wealth.
While home prices have risen at a robust pace for the past 5 years, they have not increased as much as stocks. And home price growth has slowed this year, along with sales.
Strong gains in household wealth have not spurred as much spending in the past decade as in previous years.
Historically, in what economists call the “wealth effect,” an additional dollar in financial or real estate wealth has lifted spending by 3 to 5c, which accelerates the economy.
But since the Great Recession Americans have been more reluctant to spend from their wealth. Economists suggest that households increasingly see wealth gains as potentially temporary and are more cautious about spending it as a result.
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