Household net: Worth-less feeling

  • March 12, 2009 - 10:37 PM

Most of us have been feeling poorer. On Thursday, the Federal Reserve released numbers to support the sentiment. At the end of 2008, Americans' net worth fell $11.2 trillion, or 18 percent from 2007, to $51.5 trillion; $5.1 trillion of that decline was felt in the fourth quarter alone.

Net worth soared from 2003 through the third quarter of 2007 as stocks and real estate hit record highs. But the Fed's numbers show that net worth -- which measures the difference between a household's real estate and financial assets and its liabilities -- has been on the decline for six quarters in a row and puts Americans' total wealth back to 2004 levels, when net worth was $51.8 trillion.

Overall, the data confirm that the "wealth effect," the tendency for people to spend more money as their asset values rise, is over.

Household real estate assets have been declining since 2006. With median home values far below what they were during the bubble, home equity as a percentage of a home's value fell nearly six percentage points in the fourth quarter to 43 percent -- the lowest number on record.

There are bright spots: After years of next to no savings, Americans are fluffing up their cash cushions again.

The report also showed that total household debt rose 0.4 percentage points for the year, a far cry from the double-digit increases seen during much of this century. In the fourth quarter of 2008, as consumers realized the extent of the nation's economic troubles, household borrowing -- which includes mortgage and credit card debt -- shrank at a 2 percent annual rate.


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