Household’s Net Worth Drops


By Dr. Lynn Reaser

After rising for four consecutive quarters, households saw their total net worth fall $1.5 trillion or 2.8% in the three-month period ending in June.   The stock market was the culprit, as the S&P 500 fell about 12%.

 Consumers have continued to deleverage, shrinking their still large debt burdens.  This is a process that has been going on for the past two years and is not yet over.  Some of the reduction in household debt outstanding reflects the impact of bankruptcies, loan defaults, or loan restructuring/write-downs.  It also reflects the conscious efforts of many households to cut back their assumption of new debt as well as stricter underwriting standards on the part of many financial institutions.

 On the asset side, firming home prices are finally helping households rebuild their balance sheets.  Stock prices have also recovered this quarter following their spring swoon.  This suggests that household net worth has already reversed most, if not all, of last quarter’s loss.  As a result, household net worth presently is significantly better than the latest figures suggest– a good result in light of the approach of the holidays and Christmas.

 Household net worth peaked in the middle of 2007 at $65.8 trillion and now stands at $53.5 trillion.  Although household debt may continue to edge lower, stock prices and home values are unlikely to see a rapid, dramatic rebound.  As a result, it could be several years before Americans feel as wealthy as they once were.

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