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

by: Tim Iacono

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.
IMAGE Click to enlargeAt $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.


IMAGE Click to enlarge

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.