Thursday, June 05, 2014

Fed's Q1 Flow of Funds: Household Net Worth at Record High

by Bill McBride on 6/05/2014 12:00:00 PM

The Federal Reserve released the Q1 2014 Flow of Funds report today: Flow of Funds.

According to the Fed, household net worth increased in Q1 compared to Q4, and is at a new record high. Net worth peaked at $68.9 trillion in Q2 2007, and then net worth fell to $55.6 trillion in Q1 2009 (a loss of $13.3 trillion). Household net worth was at $81.8 trillion in Q1 2014 (up $26.2 trillion from the trough in Q1 2009).

The Fed estimated that the value of household real estate increased to $20.2 trillion in Q1 2014. The value of household real estate is still $2.5 trillion below the peak in early 2006.

Household Net Worth as Percent of GDP Click on graph for larger image.

The first graph shows Households and Nonprofit net worth as a percent of GDP.  Although household net worth is at a record high, as a percent of GDP it is still slightly below the peak in 2006 (housing bubble), but above the stock bubble peak.

This includes real estate and financial assets (stocks, bonds, pension reserves, deposits, etc) net of liabilities (mostly mortgages). Note that this does NOT include public debt obligations.

This ratio was increasing gradually since the mid-70s, and then we saw the stock market and housing bubbles. The ratio has been trending up and increased again in Q1 with both stock and real estate prices increasing.

Household Percent EquityThis graph shows homeowner percent equity since 1952.

Household percent equity (as measured by the Fed) collapsed when house prices fell sharply in 2007 and 2008.

In Q1 2014, household percent equity (of household real estate) was at 53.6% - up from Q4, and the highest since Q1 2007. This was because of both an increase in house prices in Q1 (the Fed uses CoreLogic) and a reduction in mortgage debt.

Note: about 30.3% of owner occupied households had no mortgage debt as of April 2010. So the approximately 50+ million households with mortgages have far less than 50.7% equity - and millions have negative equity.

Household Real Estate Assets Percent GDP The third graph shows household real estate assets and mortgage debt as a percent of GDP.

Mortgage debt decreased by $37 billion in Q1.  

Mortgage debt has now declined by $1.28 trillion from the peak. Studies suggest most of the decline in debt has been because of foreclosures (or short sales), but some of the decline is from homeowners paying down debt (sometimes so they can refinance at better rates).

The value of real estate, as a percent of GDP, was up in Q1 (as house prices increased), and somewhat above the average of the last 30 years (excluding bubble). However household mortgage debt, as a percent of GDP, is still historically high, suggesting still a little more deleveraging ahead for certain households.

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