Household Wealth in U.S. Increases as Home Values Appreciate

Household wealth in the U.S. climbed in the first quarter, helped by labor market improvement and gains in the stock and residential real estate markets that are giving balance sheets a lift.

Net worth for households and non-profit groups increased by $1.49 trillion from January through March, or 1.9 percent from the previous three months, to $81.8 trillion, the Federal Reserve said today from Washington in its flow of funds report.

Rising stock prices and home values helped Americans feel wealthier at the start of the year, even as unusually harsh weather battered consumer and business spending. Bigger gains in the labor market may help further boost balance sheets and spur the household purchases that make up about 70 percent of the economy.

“The deleveraging on the consumer front has largely run its course, and we’ve obviously been helped by the run-up in financial assets,” said Omair Sharif, a U.S. economist at RBS Securities Inc. in Stamford, Connecticut. “Balance sheets have been improving pretty substantially over the last few years.”

Household net worth is $12.9 trillion above its pre-recession peak of $68.9 trillion reached in the second quarter of 2007.

The value of financial assets owned by American households, including stocks and pension-fund holdings, increased by $721 billion in the first quarter, today’s Fed report showed.

Equity prices have risen at a faster pace so far this quarter than in the first three months, with the Standard & Poor’s 500 Index advancing 3 percent from March 31 through June 4, while the first quarter saw a 1.3 percent increase.

Real Estate

Household real-estate assets climbed by $758 billion, according to today’s flow of funds data. Owners’ equity as a share of total household real-estate holdings increased to 53.6 percent last quarter from 51.6 percent in the previous three months.

A slowing in the housing market recovery has limited those gains. The S&P/Case-Shiller index of property values increased 12.4 percent in March from the same month last year, the smallest 12-month gain since July, after rising 12.9 percent in the year ended in February, a May 27 report from the group showed.

Automakers are enjoying a boost in industry sales as consumers feel comfortable enough to replace ageing vehicles. Cars and light trucks sold at a 16.7 million annualized rate in May, the fastest since February 2007, according to data from Ward’s Automotive Group.

Auto Sales

General Motors Co. posted its best month of U.S. auto sales since before the collapse of Lehman Brothers, while Ford Motor Co., Chrysler Group LLC, Toyota Motor Corp., Honda Motor Co. and Nissan Motor Co. also reported better sales than analysts had predicted. The figures are in line with Dearborn, Michigan-based Ford’s upbeat outlook on the economy for the rest of the year.

“Manufacturing activity remains robust, recent readings on housing have improved slightly and the labor market continued its gradual recovery,” Emily Kolinski Morris, senior U.S. economist at Ford, said on a June 3 conference call. “These incoming indicators coupled with the supportive policy backdrop should provide positive momentum for the economy in the current quarter and into the second half.”

The improvement in household wealth is encouraging Americans to borrow again. Today’s flow of funds report showed household debt increased at a 2 percent annualized rate from January through March. Consumer credit, including auto and student loans, climbed at a 6.6 percent pace, while mortgage borrowing fell at a 0.9 percent pace.

More Borrowing

Total non-financial debt increased at a 5 percent annualized pace last quarter, led by a 7.3 percent advance by businesses. State and local government borrowing declined at a 0.7 percent pace and federal climbed 7.1 percent.

An improving job market is also boosting household finances. The share of household income spent on mortgage and consumer-loan payments in the fourth quarter was 9.96 percent, close to a record-low 9.94 percent reached in the final three months of 2012, according to Fed data going back to 1980. The figure peaked at 14.1 percent in September 2007.

The unemployment rate was 6.3 percent in April, a more than five-year low, and is forecast to rise to 6.4 percent when the Labor Department releases May figures tomorrow. The median estimate of economists in the Bloomberg survey projects payrolls increased by 215,000 workers in May following a 288,000 advance the previous month. Employment gains averaged 194,250 in 2013.

To contact the reporter on this story: Michelle Jamrisko in Washington at mjamrisko@bloomberg.net

To contact the editor responsible for this story: Carlos Torres at ctorres2@bloomberg.net Vince Golle

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