2009 February 13 Friday
Household Net Worth Declining

If your net worth is rising then you are successfully swimming against the tide.

According to the Fedís survey of consumer finances, released Thursday, average net worth is estimated to have fallen 22.7% from 2007 until October 2008. The median, or midpoint, fell a more modest 17.8%, suggesting declines were centered among wealthier families.

Easy come, easy go.

Here's another sign that the declines were sharper among higher net worth people:

If the value of second homes and businesses are excluded, the Fed said in its report, average household net worth fell 12 percent, which reflects that such assets are "relatively concentrated among wealthier families."

We've given up all the gains of yet another bubble. I hope we can at least swim in place and not see even bigger declines than 2001 brought.

As of October, median net worth had fallen to $98,900, down 3.2% from the end of 2007 and 2% below the level reported in the 2001 survey that was conducted after the dot.com bubble burst. Since October, stock prices have fallen another 15%, while home prices have fallen at least 2%.

The biggest decline in 56 years.

"Americans' personal net worth declined 11% Y/Y from the end of 3Q07 to the end of 3Q08... the largest (year-to-year) decline in 56 years for which the agency has data available."

But some of this net worth decline is not as bad as it looks. Housing price declines are cutting the prices on homes which otherwise are just as usable as when they cost more.

The median price of a U.S. home declined 12 percent to $180,100 from a year earlier and sales of properties with mortgages in default accounted for 45 percent of all transactions, the Chicago-based National Association of Realtors said today. Prices declined in almost nine out of every 10 cities.

For people who want to buy a home salaries aren't going up but then the prices of homes are going down. How this balances out varies from person to person.

About 33 percent of U.S. companies may freeze pay this year, an increase from 25 percent last year, according to a Jan. 22-29 survey of 400 mid-size and large companies released Feb. 9 by Mercer, a compensation consulting company in New York. The survey did not include questions about pay reductions.

Can we unravel the accumulated mountains of private sector debt without deep deflation?

Share |      By Randall Parker at 2009 February 13 11:55 PM  Economics Living Standards

Said E. Dawlabani said at February 14, 2009 6:00 PM:

It will be impossible for deflationary pressure not to be a factor in the next 5 years. The economic expansion over the last 10 years has been greatly based on false metrics that had little to do with traditional ways of building sustainable wealth. Since home equity seems to be the greatest source of net worth for 90% of America, the focus has to be on real estate values. I would say we need to fall back to the accumulated historic year-to-year price increases prior to 1999 and NOT the Case/Schiller index which is narrow in scope and too new to predict future movement of prices.

In addition to the downward pressure of going back to old metrics, there has been unprecedented levels of overbuilding in markets that have fallen the most. On last check Miami/Dade still had over 5 years of unsold inventories. This must be factored in before a bottom to the housing market can be established. Then and only then would net worth start going up again, but only the rate of income growth.

BlackSheep said at February 15, 2009 3:11 PM:

Why measuring household instead of individual income? Can't household incomes be affects by such factors as divorce rates?

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