Z1 Flow of Funds Report: Household Net Worth Declines $11.2 Trillion

The Federal Reserve released their Z1 flow of funds report and the news wasn't good. During 2008, we Americans reduced our debt, but the value of our assets tumbled even faster resulting in a loss of $11.2 trillion in net worth. The declining asset values are shown below.
At $65.7 trillion, U.S. household assets still exceed liabilities of $14.2 trillion by a very wide margin yielding an overall net worth of $51.5 trillion, but it sure doesn't feel that way.

More importantly, during the first ten weeks of 2009, the fourth quarter trend that saw over $5 trillion in net worth vanish has continued unabated.

Last time around, overall asset values dipped only slightly as shown in the dashed area to the left in the chart above. This time around, with prices for housing and stocks both sinking, it's not clear what's going to push overall asset values up.

Higher asset prices are, after all, the whole point of what we do here in America.

As shown below, the total value of all owner-occupied housing in the U.S. has tumbled from a high of almost $22 trillion back in 2006 to just over $18 trillion today. Unfortunately, there's more downside to come.

On the other side of the balance sheet, total household mortgage debt remains near its peak of early 2008, down only about $100 billion over the last year.

The Q1-2009 Z1 report is likely to be just as grim.

Comments

[jstratt:]

Excellent information! Understanding the wealth effect provides significant insight into long term consumer patterns and outlook.

Mar 12 05:41 PM

[Harry Tuttle:]

The reason "it sure doesn't feel that way" is simple. If I have 1MM in cash and no debt and my neighbor has no cash and 1MM in debt, on average our wealth position is zero.

This is analogous to those trillions in money market funds that people count on to revive the bull market.

Mar 12 06:09 PM

[Dave Wrixon:]

It doesn't feel that way because of the illiquidity of most of the assets. By definition they cannot become liquid all at once. For each seller there has to be a buyer. It not like you can all sell up and realize all the cash and go on vacation or something.

Mar 12 07:25 PM

[2houndz:]

Dave - good point. Also, not everyone wants to be liquid. If someone is content in his home, job intact, no need to sell and no stupid leverage, then he probably doesn't care about the real estate bubble. It's all academic to him.

On the other hand, the guy who NEEDS to get liquid is experiencing the perfect storm. Can you imagine owning an asset that is falling in value by the day and there are NO buyers? That'll keep you up at night.

In retrospect it's hard to believe that so many played Leverage Roulette with such a lumpy, illiquid asset.

Mar 12 09:35 PM

[PastTense:]

I would have found the article more informative if it was given as per household than how many trillion in total.

What exactly compose the other assets?

Mar 12 11:51 PM

[Steven Hansen:]

the Z.1 data seems to have a bit of a wobble. the case shiller data shows a drop of over 25% between Q1 2006 and Q4 2008 in housing prices while the Z.1 data shows less than 15% decline.

this Z.1 report says the average household was worth at the end of 2008 - the same as 2004. i am not sure this tracts with reality either.

Mar 13 02:10 AM