Gains in net worth have been driven primarily by gains in financial assets (equities, bonds, and savings), and also by real estate, which has recovered to levels last seen some seven years ago. In contrast, household debt today is about the same as it was over 7 years ago. The wealth of U.S. households now stands at almost $83 trillion, up $4 trillion in just the past year.
By cutting back on debt while financial assets and real estate prices appreciated, households have achieved a significant reduction in leverage, as shown in the chart above.
In constant dollar terms, household net worth is now at a new all-time high, having finally surpassed the previous pre-recession (and bubble-like) high.
In constant dollar terms, per capita net worth is also at a new all-time high of $260K.
This is all unquestionably good news, yet it stands in sharp contrast to the prevailing mood of the market—at least as I see it—which still exhibits a good deal of caution. Households have amassed almost $8 trillion in bank savings deposits, despite their miserably low yield. Nominal yields on high quality bonds are near record lows, and real yields on 5-yr TIPS are zero. The demand for safe, risk-free assets has never been stronger.
Regardless, things are getting better, albeit slowly. But frustration over the lack of even more progress (e.g., the economy should be growing at 4-5% per year instead of only 2.5-3%) is not a reason to be pessimistic. Especially when the price of safety (i.e., the yield on cash and high quality, short-term debt instruments) is so high. If anything, this tells me that there is a lot of under-appreciated upside potential in the market and the economy, if we could only improve the outlook for fiscal policy.