TribLIVE

| USWorld


 
Larger text Larger text Smaller text Smaller text | Order Photo Reprints

Americans' bottom line recovers from slump

Email Newsletters

Click here to sign up for one of our email newsletters.

Daily Photo Galleries

By The Associated Press
Thursday, March 7, 2013, 7:45 p.m.
 

WASHINGTON — It took 5½ years.

Surging stock prices and steady home-price increases have finally allowed Americans to regain the $16 trillion in wealth they lost to the Great Recession. The gains are helping to support the economy and could lead to further spending and growth.

The recovered wealth — most of it from higher stock prices — has been flowing mainly to richer Americans. By contrast, middle-class wealth is mostly in the form of home equity, which has risen much less.

Household wealth amounted to $66.1 trillion at the end of 2012, the Federal Reserve said on Thursday. That was $1.2 trillion more than three months earlier and 98 percent of the pre-recession peak.

Further increases in stock and home prices this year mean that Americans' net worth has since topped the pre-recession peak of $67.4 trillion, private economists say. Wealth bottomed at $51.4 trillion in early 2009.

“It's all but certain that we surpassed that peak in the first quarter,” said Aaron Smith, senior economist at Moody's Analytics.

Household wealth, or net worth, reflects the value of assets such as homes, stocks and bank accounts minus debts such as mortgages and credit cards. National home prices have extended their gains this year. And the Standard & Poor's 500 index, a broad gauge of the stock market, has surged 8 percent this year.

Some economists caution that the recovered wealth might spur less consumer spending than it did before the recession.

Dana Saporta, an economist at Credit Suisse, notes that Americans are less likely to use the equity in their homes to fuel spending. The value of home equity Americans are cashing out has fallen 90 percent in six years, she said.

And since the housing bust, when home values fell broadly for the first time in decades, many homeowners are skeptical that higher prices will last, Saporta said. They won't necessarily spend more as a result.

Finally, the upper-income Americans who have benefited most from the nation's recovered wealth don't tend to spend as much of their money as do Americans overall.

But they've gotten a lot richer. The Dow Jones industrial average has just set a record. Since bottoming in March 2009, the Dow has jumped 119 percent. About 80 percent of stocks are held by the richest 10 percent of households.

For the past five years, middle-class Americans have sold stocks and missed out on much of the rebound. In the October-December quarter, Americans dumped nearly $466 billion in stocks and bought $229 billion in bonds, the Fed's report showed.

Homes accounted for two-thirds of middle-class assets before the recession, estimates economist Edward Wolff of New York University. Among all households, they accounted for only one-third of assets. And national home values remain about 30 percent below their peak.

Still, some Americans are benefiting from rising home prices — and spending more as a result.

Helen Lyons of Takoma Park, Md., bought a home with her husband last year and is noticing neighbors selling for much higher prices. That's given her confidence that her home purchase will pay off.

“I think we got in at exactly the right time,” said Lyons, 24. “We feel like we are sitting on something that is a potential investment, not just a place to live.”

The increase in their home's value has led Lyons and her husband to repaint the interior, landscape the yard and stain the porch.

“You buy a house, you end up going to Home Depot and spending tons of money,” Lyons said.

That helps explain why economists expect Americans' regained wealth to contribute further to the economic recovery. Consumer spending accounts for about 70 percent of the economy.

“It should boost consumption because as people feel wealthier, they tend to spend more,” Saporta said. “It doesn't necessarily mean that households will go on a spending spree.”

Carl Riccadonna, an economist at Deutsche Bank, is a bit more optimistic. He thinks higher home values and some easing of credit requirements by banks will lead Americans to cash out more of their home equity.

Riccadonna forecasts that the increase in home prices alone could boost consumer spending this year by about $110 billion — nearly offsetting the $120 billion cost of higher Social Security taxes that kicked in Jan. 1.

The Fed report showed that Americans increasingly are taking on more debt, enabling them to spend more. In the October-December quarter, household debt rose 2.4 percent, the sharpest gain in nearly five years.

Subscribe today! Click here for our subscription offers.

 

 


Show commenting policy

Most-Read Nation

  1. Justice to investigate airlines over seat restrictions, ticket prices
  2. Fires at black churches stir worst fears amid relative calm
  3. Obama: U.S. embassy in Havana marks ‘new chapter’ in Cuba ties
  4. Supreme Court to take up mandated dues for public employees unions in next term
  5. Official: Fire at South Carolina black church wasn’t arson
  6. Senator McCain: Rocket engine a priority for space program
  7. Charter lapses for Export-Import Bank; conservatives vow to block revival in House
  8. Advocate pushes IRS on nonprofits’ tax forms
  9. House GOP targets Obama climate plan for power plants
  10. Louisiana Gov. Jindal announces campaign for president
  11. Jury awards $500K to Virginia patient mocked by doc