Americans’ Net Worth Hits All-Time High as Debt Rises

Household net worth hit nearly $95 trillion in the first quarter, but debt levels are also on the rise.

By Andrew Soergel, Economy Reporter | June 8, 2017, at 5:46 p.m.

WASHINGTON, DC - JUNE 23: A "For Sale" sign sits in the front yard of a townhouse June 23, 2015 in Northeast Washington, DC. Purchases of new homes in the U.S. rose in May to the highest level in seven years, signaling that the industry may be gaining momentum heading toward the second half of the year. (Photo by Drew Angerer/Getty Images)A “For Sale” sign sits in the front yard of a townhouse June 23, 2015, in Northeast Washington, DC. (Drew Angerer/Getty Images)

An influx of $2.3 trillion into Americans’ pockets in the first three months of the year pushed U.S. net household worth to a record high – though rising debt levels have also begun to raise concern among analysts.

The Federal Reserve on Thursday afternoon reported Americans’ net worth climbed to $94.8 trillion in January, February and March – a 2.5 percent jump from the fourth quarter of 2016.

That’s also up nearly $39 trillion from where wealth sat during the depths of the Great Recession in 2008. Americans’ collective net worth in the first quarter was up more than 68 percent from that low, as consumers’ stock portfolio values gained $1.3 trillion and real estate values climbed $499 billion during January, February and March alone.

Housing prices in much of the country have consistently climbed to all-time highs in recent months as strong demand and a tight supply of available homes have combined to create a seller’s market. The S&P CoreLogic Case-Shiller U.S. National Home Price Index in March was up 5.8 percent over the year for its fastest rate of growth in nearly three years.

And stock values, buoyed by strong consumer sentiment in the aftermath of President Donald Trump’s Election Day victory, have soared since November, with the Dow Jones industrial average on Thursday setting an intraday high north of 21,260 points. Heading into Thursday, the Dow had gained more than 2,800 points – an increase of more than 15 percent – from where it sat when markets closed on Nov. 8.

“Confidence among businesses and consumers is still high, which we think will translate into faster growth,” Burt White, the chief investment officer at LPL Financial, wrote in a research note last month.

But household debt is also on the way up, though it doesn’t look quite how it did a few years ago. Total outstanding household debt hit nearly $15 trillion in the first quarter – considerably higher than it was even in the buildup to the Great Recession. But outstanding home mortgage debt, which in 2007, 2008 and 2009 sat north of $10 trillion, sat at just $9.8 trillion in January, February and March. Consumer credit, meanwhile, surged north of $3.8 trillion.

And a separate report from the Fed’s New York regional bank published last month showed auto loan debt climb to nearly $1.2 trillion in the first quarter, up $96 billion from the same period a year prior.

With homeownership still historically low and millions of Americans burned by mortgage complications in the aftermath of the housing bubble’s collapse, recent mortgage repayments haven’t been as much of a problem as they were a few years ago. The Fed estimates residential real estate loans in the first quarter maintained a 3.9 percent delinquency rate. At the beginning of 2010, just after the U.S. pulled out of the recession, that rate sat at 11.5 percent.

But auto and credit card delinquency rates have crept up in recent quarters. The New York Fed’s “seriously delinquent” rate, which measures the proportion of all outstanding debt that is at least 90 days overdue, for auto loans hit 3.8 percent in the first quarter. For credit cards, that rate climbed to 7.5 percent.

“While most delinquency flows have improved markedly since the Great Recession and remain low overall, there are divergent trends among debt types,” Donghoon Lee, a research officer at the New York Fed, said in a statement accompanying last month’s report. “Auto loan and credit card delinquency flows are now trending upwards, and those for student loans remain stubbornly high.”

What that means for the future of consumer debt isn’t immediately clear. But Danielle DiMartino Booth, an author and founder of economic consulting outfit Money Strong, says there’s some concern that delinquency and default rates are climbing even as unemployment drops to its lowest level in years.

If debt is starting to get out of control for people who are gainfully employed, she argues, things could get bad quickly if the economy turns south.

“The one thing that I saw pointed out recently is that we have rising defaults pushing the ’09-’10 highs on autos with a really low unemployment rate. That’s unique. That’s different,” she says. “That means that even though people are employed, they’re still making defaults on their auto payments. And that’s not good.”

 

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