Thursday, December 10, 2009

Households' balance sheet repair continues

According to the Federal Reserve, in just six months following the low of last March, households' net worth has increased by almost $5 trillion, or 10%. Household debt fell by almost $60 billion, the value of household real estate holdings increased by over $600 billion (yes, increased!), and thanks to a strong stock market and increased savings, households' financial assets increased by $4.2 trillion since last March.

Moreover, in the six month period ending Sept. '09, household disposable personal income rose by $235 billion, owner's equity in household real estate rose by nearly $1 trillion (yes, one trillion!), and owner's equity as a percentage of household real estate rose by 12%. This is an impressive and across the board improvement in key indicators of households' well-being. 

We've still got a ways to go to get back to where we were in 2007, but we're making excellent progress. That's one more thing to be thankful for as we approach the holiday season.


alstry said...

the value of household real estate holdings increased by over $600 billion (yes, increased!)

This number seems very difficult to believe.

The only houses that are really stabilizing in value are the ones on the low end....$0-$150K range.

In my neighborhood, homes are rountinely dropping in value $500k to $1MM and still not selling. The same is true for Palm Springs, Florida, AZ and many higher end areas across the nation.

Further, household wealth is also being destroyed by the collapse of value in commercial RE......a significant portion of American wealth is directly or indirectly invested in CRE.

Oh well, just more evidence of the Obama administration taking credit where no credit is due......

Scott Grannis said...

I would note that the Case-Shiller housing price index has been rising ever since March. We have seen the bottom in housing.

brodero said...

Not sure about the commercial real estate...there are 3.5 trillion
commercial real estate debt outstanding compared to 10.3 trillion in residential debt....also the commercial real estate transactions have tended to have lower LTV's that residential
transactions....borrowers put more
skin in the game.

Scott Grannis said...

brodero: good points about CMBS. I would add also that the losses from Commercial Real Estate have already been taken, because the value of the securities backed by CRE loans plunged a long time ago in anticipation of the wave of defaults that is coming. I think most people overlook this very important fact. The only issue is whether the market has correctly anticipated the losses that are coming. My guess is that the market has probably overestimated those losses. Once burned, twice shy, as they say.

Public Library said...


I wonder what this chart would look like if you stripped out the top 5% and bottom 5% of households.

Is that possible to do?

Scott Grannis said...

I don't think it's possible. But is it really important to know how much wealth is controlled by different segments of the population? I would argue that the most important thing to know is how that wealth is deployed, and how it changes over time. Wealth only rises if investments are productive, productive investments are what raise standards of living.

Public Library said...

If say 50% of the increasing net wealth is controlled by 1,000 individuals who invest their wealth in derivative products, commodities, and other financial paper, while the rest of the net wealth is actually declining, are we becoming a more stable and helathy society?

I think the devil in the details are relevant to the overall health of our future economy.

Scott Grannis said...

Public: go back to my previous comment. If wealth is not being deployed productively, then of course we are not going to be better off. But that is not to say that derivatives per se are non productive. They can play a very important role in making markets efficient, and efficient markets are by nature conducive to productivity and rising living standards.

To date, what stands out from the GDP statistics is a huge increase in the productivity of labor. That is very positive.