U.S. household wealth topped the $100 trillion mark for the first time ever in the first quarter of 2018, the Federal Reserve said on Thursday.
Rising house prices, a market suffering a long-term shortage, pushed up the net worth of households even as stock markets were roiled by volatility.
The Fed said the net worth of the nation's households and nonprofits rose to $100.8 trillion in the first three months of the year, up from $99.7 trillion the previous quarter.
The rising value of their investments has now boosted their net worth by over $6 trillion compared to the first quarter of 2017, a period that largely overlaps with the first year of the Trump administration.
Wealth has been rising since the United States emerged from the 2007-09 financial crisis and the U.S. labor market had been steadily improving for several years before Trump took office on Jan. 20, 2017.
The jobless rate has continued to fall, hitting 3.8 percent in May, while stock prices have risen more than 30 percent since Trump’s election in November 2016, which buoyed optimism among investors in a fiscal expansion that would help company profits.
Household borrowing rose at a 3.3 percent annual rate in the January-March period, the Fed report also showed, down from a 4.6 percent growth rate in the fourth quarter.
The value of financial assets held by households rose by $511 billion during the first quarter, while real estate value rose by $490 billion, the report said.
Elsewhere in the U.S. central bank’s report, liquid assets held by non-financial firms were $2.7 trillion, up from $2.6 trillion in the fourth quarter.
The strength of the U.S. economy has prompted the Fed to continue with incremental increases in borrowing costs as part of a tightening cycle it began in late 2015.
It has since raised interest rates another five times and investors widely expect another nudge upwards in the lending rate at its next policy meeting on June 12-13.
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.
Increased wealth could boost consumer spending in coming months. Still, wealth increases aren’t widely shared: Roughly 80 percent of the U.S. stock market is owned by 10 percent of the population. And a smaller share of Americans now own homes compared with a decade ago.
About 64 percent of Americans own their homes, down from a peak of about 69 percent in 2005. Home sales have leveled off this year as price increases and a dwindling supply of available properties have thwarted many would-be buyers.
Mortgage rates are also moving up, partly because the Federal Reserve is lifting the short-term rate it controls. That trend could also weigh on sales in the coming months.
Home prices rose 6.8 percent in March from a year earlier, according to the S&P CoreLogic Case-Shiller home price index. Some markets, like Seattle, San Francisco and Las Vegas, are experiencing double-digit annual price gains. Those increases are making it especially hard for younger Americans, already burdened by student loans, to buy a house.
Greater household wealth can support faster economic growth, although that effect might be fading. Research has found that in the past, people spent roughly 3 to 5 cents of every dollar in additional wealth they accumulated.
Since the recession, though, Americans have become more cautious with their wealth. Economists now estimate that roughly only 1 penny for every dollar is spent.
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Highlights of Household Wealth Report (First Quarter)
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- Net worth for households and non-profit groups rose by 1% q/q, or $1.03t, to $100.8t, according to Fed’s financial accounts report, previously known as flow of funds survey
- Value of corporate equities declined $290b after surging $867b
- Household debt increased at a 3.3% annual rate after a 4.6% pace at the end of 2017
- Household real-estate assets rose by $432.4b; owner’s equity as share of total real-estate holdings climbed to 59.7% from 58.9%
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Key Takeaway
While steady gains in home prices continued to bolster Americans’ wealth, the decline in stock prices tempered the pace. The S&P 500 Index shaved off 1.2 percent last quarter. The 20-city property values index climbed 6.8 percent in March from a year ago, matching February for the biggest year-over-year jump since 2014, according to S&P CoreLogic Case-Shiller data.
Rising net worth bodes well for consumers’ purchasing power and will help sustain household spending, the biggest part of the economy. At the same time, household borrowing grew at a slower pace in the first quarter, reflecting a smaller advance in mortgage debt.
The report also showed companies had $2.66 trillion in liquid assets, giving them the means to boost spending, including on investment and hiring, or the ability to buy back shares.
Other Details
- Value of financial assets, including stocks and pension fund holdings, increased by $510.6 billion to $81.7 trillion
- Mortgage borrowing advanced at a 2.9 percent pace, slower than the 3.4 percent rate in the previous quarter
- Other forms of consumer credit, including auto and student loans, climbed at a 4.2 percent rate after 6.7 percent in the fourth quarter
- Total non-financial debt, which includes businesses and governments, grew at a 7.2 percent annual pace
- Federal government obligations expanded 15.3 percent, state and local government debt dropped at a 4.2 percent pace
- Business borrowing increased 4.4 percent for a second straight quarter
(Newsmax wire services Reuters, AFP, the Associated Press and Bloomberg contributed to this report).