Household Worth in U.S Increases as Stock Prices Rebound

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Household wealth in the U.S. climbed from October through December for the first time in three quarters as an increase in stock prices outstripped a decline in home values.

Net worth for households and non-profit groups increased by $1.19 trillion in the fourth quarter, or 2.1 percent from the previous three months, to $58.5 trillion, the Federal Reserve said today in its flow of funds report from Washington. Housing wealth decreased by the most in more than a year.

The Standard & Poor’s 500 Index (SPX), which rose 11 percent in the final three months of 2011, is again climbing this year as the improving job market builds confidence in the expansion. At the same time, the gain in wealth last quarter was less than half the previous period’s slump, indicating households may continue to repair balance sheets hurt by the recession.

“Consumers are generally repairing their balance sheets,” said Guy LeBas, chief fixed-income strategist at Janney Montgomery Scott LLC in Philadelphia. “The performance of the stock market has been a crutch for households. Consumer spending is constrained by the need to pay down debt.”

Since reaching a five-year low of $50.5 trillion in the first quarter of 2009, net worth has improved by $8 trillion. That still leaves it $8.4 trillion below the record high of $66.8 trillion reached in the quarter ended June 2007, six months before the recession began.

Real-Estate Wealth

The value of household real estate fell by $367.4 billion in the last three months of 2011, the first decrease in three quarters.

Owners’ equity as a share of total household real-estate holdings dropped to 38.4 percent last quarter from 38.9 percent.

The S&P/Case-Shiller national index of home prices decreased 4 percent in the fourth quarter from the same time in 2010, according to figures released Feb. 28. The gauge fell 3.8 percent from the prior three months before seasonal adjustment, and fell 1.7 percent after taking those changes into account.

The value of financial assets, including stocks and pension fund holdings, held by American households increased by $1.46 trillion in the fourth quarter, according to today’s flow of funds data.

The S&P 500 has risen 7.6 percent this year through yesterday amid better-than-estimated economic data and expectations Europe would tame its debt crisis.

Household Debt

Household debt rose at a 0.3 percent annual rate last quarter, the first increase in more than three years, today’s report showed. Mortgage borrowing decreased at a 1.5 percent pace, the 11th consecutive drop. Other forms of consumer credit, including auto and student loans, climbed at a 6.9 percent pace, the biggest gain in at least seven years.

Photographer: Jacob Kepler/Bloomberg

Rows of houses stand in Las Vegas, Nevada. Close

Rows of houses stand in Las Vegas, Nevada.

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Photographer: Jacob Kepler/Bloomberg

Rows of houses stand in Las Vegas, Nevada.

The labor market may help to repair household finances. Payrolls rose by 210,000 in February and the jobless rate held at 8.3 percent, according to the median forecast of economists surveyed by Bloomberg News before a Labor Department report tomorrow.

Company balance sheets are faring better than households, today’s report showed. Businesses had a record $2.23 trillion in cash and other liquid assets at the end of the fourth quarter, up from $2.12 trillion in the prior three months.

Total non-financial debt climbed at a 4.9 percent annual pace last quarter, led by a 13 percent increase by the federal government and a 4.6 percent gain among businesses. State and local government borrowing dropped at a 1 percent pace.

To contact the report on this story: Shobhana Chandra in Washington at schandra1@bloomberg.net

To contact the editor responsible for this story: Christopher Wellisz at cwellisz@bloomberg.net

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