US household wealth hits pre-recession peak
APWASHINGTON -- It took 5 1/2 years.
March 9, 2013, 12:09 am TWN
Surging stock prices and steady home-price increases have finally allowed Americans to regain the US$16 trillion in wealth they lost to the Great Recession. The gains are helping support the economy and could lead to further spending and growth.
The recovered wealth — most of it from higher stock prices — has been flowing mainly to richer Americans. By contrast, middle class wealth is mostly in the form of home equity, which has risen much less.
Household wealth amounted to US$66.1 trillion at the end of 2012, the Federal Reserve said Thursday. That was US$1.2 trillion more than three months earlier and 98 percent of the pre-recession peak.
Further increases in stock and home prices this year mean that Americans' net worth has since topped the pre-recession peak of US$67.4 trillion, private economists say. Wealth had bottomed at US$51.4 trillion in early 2009.
“It's all but certain that we surpassed that peak in the first quarter,” said Aaron Smith, senior economist at Moody's Analytics.
Household wealth, or net worth, reflects the value of assets like homes, stocks and bank accounts minus debts like mortgages and credit cards. National home prices have extended their gains this year. And the Standard & Poor's 500 index, a broad gauge of the stock market, has surged 8 percent so far this year.
Some economists caution that the recovered wealth might spur less consumer spending than it did before the recession. Dana Saporta, an economist at Credit Suisse, notes that Americans are now less likely to use the equity in their homes to fuel spending. The value of home equity Americans are cashing out has fallen 90 percent in six years, she said.
And since the housing bust, when home values fell broadly for the first time in decades, many homeowners are skeptical that higher prices will last, Saporta said. They won't necessarily spend more as a result.
Finally, the upper-income Americans who have benefited most from the nation's recovered wealth don't tend to spend as much of their money as Americans overall do.
But they've gotten a lot richer. The Dow Jones Industrial Average has just set a record high. Since bottoming in March 2009, the Dow has jumped 119 percent. Roughly 80 percent of stocks are held by the richest 10 percent of households.
For the past five years, middle-class Americans have sold stocks and missed out on much of the rebound. During 2012, Americans dumped US$204 billion in stocks, the Fed's report showed.
Homes accounted for two-thirds of middle-class assets before the recession, estimates economist Edward Wolff of New York University. Among all U.S. households, they accounted for only one-third of assets. And national home values remain about 30 percent below their peak.
Still, some Americans are benefiting from rising home prices — and spending more as a result.
Helen Lyons of Takoma Park, Maryland, bought a home with her husband last year and is already seeing neighbors sell for much higher prices. That's given her confidence that her home purchase will pay off.
“I think we got in at exactly the right time,” said Lyons, 24.
The increase in her home's value has led Lyons and her husband, Nick Finio, to repaint the interior, landscape the yard and stain the porch.
“You buy a house, you end up going to Home Depot and spending tons of money,” Lyons said.
That helps explain why economists expect Americans' regained wealth to contribute further to the economic recovery. Consumer spending accounts for about 70 percent of the economy.