Household net worth increases in 1st quarter

6/11/2010

Household wealth in the United States grew in the first three months of the year, a gain that may be reversed this quarter as the European debt crisis hurts stocks.

Net worth for households and nonprofit groups rose by $1.06 trillion, a fourth consecutive gain, to $54.6 trillion, according to a Federal Reserve report issued yesterday. Home values decreased for a second quarter.

"Whatever gain households saw in the first quarter, it looks like it'll be erased and then some" in the second quarter, said Julia Coronado, a senior U.S. economist at BNP Paribas in New York.

The major stock indexes have struggled since the end of March.

Household holdings of corporate equities increased in value by $387.4 billion in the first quarter, the biggest gain since the third quarter of 2009, according to the Fed's report. The value of real-estate investments decreased by $26.8 billion.

Since the recession began in December, 2007, Americans have been constrained by periods of falling home and stock prices, tight credit, and rising unemployment.

Owners' equity as a share of their total real-estate holdings increased to 38 percent last quarter from 37.6 percent in the last three months of 2009, today's Fed report showed.

The measure reached a high of 59.8 percent at the peak of the housing boom in 2005.

Further declines in home prices could weigh on consumer spending. Property values will fall 3 percent during the next 12 months, implying a $1 trillion drop in household wealth, according to a forecast by economists at Goldman Sachs Group Inc. in New York.

The decline will pull spending down by as much as 0.8 percentage point over the period.

However, the new report showed that consumer debt dropped at a 2.4 percent annual pace in the first quarter, the seventh consecutive decrease. For all of 2009, borrowing fell 1.7 percent, the first decline since records began in 1952.

"Consumers are cleaning up their balance sheets," said Joshua Shapiro, chief U.S. economist at Maria Fiorini Ramirez Inc., a forecasting firm in New York.