Middle Class/Widening Wealth Gap

Household Wealth Gets Strong Bounce Even as Home Equity Falls

Posted on Thursday, June 30, 2011

Home equity continued to head south during the first part of the year, but losses were eclipsed by another big jump in the value of financial assets as the stock market sustained positive movement.
This, combined with a further reduction in overall debt levels, pushed household net worth higher during the first quarter, according to the Federal Reserve.
The central bank’s U.S. Flow of Funds snapshot released this week showed that real estate assets lost $349 billion of their value over the first three months of 2011. Quarterly depreciation has been a constant since the market downturn as home prices have been in a state of freefall, save for the simulated blip experienced from the federal government’s homebuyer tax credit run.
The Federal Reserve says a mere 38 percent in homeowner equity is now the norm. Homeowner equity has been cut by more than a third over the past decade, when the average was 61 percent.
As property values have fallen, households have trimmed their mortgage liability, which dropped by another 3.4 percent during the first quarter. The Fed reports that for the first time in four years, total outstanding mortgage debt has slipped below $10 trillion.
At the same time, households upped their wealth with a gain in the value of financial asset holdings in Q1, which surged $1.16 trillion.
Factoring in all the dollar signs, household net worth increased by $943 billion during the January-to-March timeframe. That follows a $2.4 trillion jump during the fourth quarter of last year and a gain of $1.2 trillion the previous quarter.
The Fed report shows that the net worth of all U.S. households rose to $58 trillion as of the end of March.
Commenting on the latest Fed data, Gregory Daco, principal U.S. economist for the research firm IHS Global Insight, noted, “Private finances are slowly improving as deleveraging continues and the labor market improves.”
However, looking into the second quarter, Daco says “it would be folly to expect a household net worth gain as stock market prices currently stand below their early April levels, and the housing market is not headed for a quick turn-around.”
Without a continuation of strong gains for financial assets gains, he says “the depressed housing market will be a drag on household net worth in the second quarter.”
Daco added that his organization “expects the latter half of 2011 to post meager net worth gains as housing makes a sluggish recovery.”
By Carrie Bay DS NEWS

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