Stock, Housing Gains Propelled U.S. Household Net Worth To A Record High Of $80.6 Trillion In Q4

Includes: DIA, IYR, QQQ, REK, REM, SPY
by: Mark J. Perry

networthThe Federal Reserve reported today the net worth of American households – the difference between the value of total household assets and total household liabilities – rose to a new all-time record high of $80.66 trillion in Q4 last year (see chart above). Here are some additional details and highlights of today’s report:

1. Compared to the cyclical low of $55.71 trillion of household net worth in Q1 2009, US households have gained almost $25 trillion in wealth over the last four years, which by a factor of almost two has offset the staggering $13.4 trillion recession-related loss in household wealth that took place in the six quarters from Q3 2007 to Q1 2009 (see blue bars in chart).

2. Household wealth increased by nearly $10 trillion over the most recent four quarters, from $70.86 trillion in Q4 2012 to to $80.66 trillion in Q4 2013, due to strong gains in stock market and housing values. On an annual basis, that $10 trillion increase marks the largest gain in household wealth in any one-year period in US history.

3. Household wealth increased by almost $3 trillion during Q4 (October to December) last year (the third largest quarterly gain on record), led by a $1.318 trillion gain in corporate equities, a $349 billion gain in mutual fund values, and a $455 billion increase in the value of residential real estate owned by households.

4. In Q4, the value of corporate equities owned by US households increased in value by more than 34% over the last year to a new record high of nearly $14 trillion. Likewise, the value of mutual fund shares owned by households increased over the year by almost 27% to a new record high of nearly $7 trillion.

5. Adjusted on a per household basis (without considering wealth distribution), the aggregate household wealth of $80.66 trillion in Q4 of last year would translate into an average of just over $700,000 in assets (houses, stocks, bank accounts, etc.) owned per US household, free and clear of any debt. Ten years ago, average net worth per US household was only about $406,000, so the average wealth per US household today has increased by more than 72% over the last decade – not too bad given all that’s happened in the last five years (Great Recession, stock market crash, housing bubble, financial crisis, mortgage meltdown, etc.). Even after adjusting for inflation, the average net worth per household has increased by more than 35% over the last decade.

6. The increase in household wealth to a new record high measured in nominal dollars ($80.66 trillion) in Q4 2013 was also a new record high for household wealth measured in inflation-adjusted, 2013 dollars (see brown line in chart above), surpassing for the first time the previous record of $78.26 trillion of household net worth set back in Q1 2007.

On an inflation-adjusted basis, household balance sheets have now finally made a complete recovery from the disastrous effects of the Great Recession and financial crisis of 2007-2009, when US households lost almost one-fifth (19.4%) of their net worth in just two years. Thanks to a stock market booming to all-time record high levels in recent months, and a recovering housing market that has boosted home prices by 11.6% and $2.3 trillion, Americans’ household wealth in real terms is now back at all-time high levels.

And looking forward, there’s no reason that the gains in household wealth won’t continue: the updated probability of a US recession is only about 1 percent, all of the major indexes of financial market stress and general business conditions are back to pre-recession levels, including the St. Louis Fed Financial Stress Index, the Kansas City Financial Stress Index, the Chicago Fed National Financial Conditions Index, the Aruoba-Diebold-Scotti Business Conditions Index, the CBOE Volatility Index (VIX), and the Bloomberg United States Financial Conditions Index.