US Household Wealth Falls

¹²US Household Wealth Falls By $1.5 Trillion

By Caroline Dobson, Epoch Times | 20 September 2010

HOUSING WOES: A 'pre-foreclosure' sign is seen in front of a home on Sep 16 in Miami, Fla. Weak housing prices is a major reason behind last quarter's $1.5 trillion decline in U.S. household wealth. The recent housing bust has not only sent millions of Americans to the unemployment lines, but also devastated the net worth of untold more.

A recently released Federal Reserve report announced that average U.S. household net worth plummeted in the second quarter. The latest data shows a $1.5 trillion loss in combined household net worth (including non-profit groups) in the period, to $53.5 trillion. This is equivalent to a 2.8 percent fall in total wealth belonging to American consumers, net of debt owed.

The Washington-based Flow of Funds report also revealed the drop in wealth, the first drop since March 2009. Certain home values rose due to the Obama Administration's tax incentive that expired in April 2010, however, going forward the recent home price gains may likely be followed by a downward trend. The drop will inevitably take away U.S. consumer spending power, which makes up 70 percent of the world's largest economy.

"Households are being very frugal in what they spend and allocating more of their income to paying off debt," said Stephen Stanley, chief economist at Pierpont Securities LLC in Stamford, Conn. in an interview with Bloomberg. "Over time, consumers need to work themselves into a better financial position and that's not going to happen overnight."

The overall picture does not bode well for a quick recovery of the U.S. housing market. Depreciation in the value of financial assets— particularly in stocks and mutual funds— made up the bulk of the fall in the second-quarter net worth. Stocks alone were down $1.9 trillion to $14.9 trillion, which exceeds the modest gains made in other areas such as state and local government retirement funds.

Data released last Thursday by the U.S. Census Bureau also indicated the degree of financial crisis' impact and the subsequent recession has eroded household incomes. Consumer debt has fallen nevertheless, at 2.5 percent annually in the second quarter based on the Flow of Funds notice. Consumers are making more effort to pay down their debts, signaling a period of austerity and depressed earning power ahead.

"Household spending is increasing gradually, but remains constrained by high unemployment, modest income growth, lower housing wealth, and tight credit," the Federal Open Market Committee said in its Aug. 10 statement.

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