Friday, September 18, 2015

Fed's Flow of Funds: Household Net Worth at Record High at end of Q2

by Bill McBride on 9/18/2015 12:28:00 PM

The Federal Reserve released the Q2 2015 Flow of Funds report today: Flow of Funds.

According to the Fed, household net worth increased in Q2 compared to Q1:

The net worth of households and nonprofits rose to $85.7 trillion during the second quarter of 2015. The value of directly and indirectly held corporate equities increased $61 billion and the value of real estate rose $499 billion.
Household net worth was at $85.7 trillion in Q2 2015, up from $85.0 billion in Q1.  Net worth will probably decline in Q3 due to the decline in the stock market..

The Fed estimated that the value of household real estate increased to $21.5 trillion in Q2 2015. The value of household real estate is still $1.0 trillion below the peak in early 2006 (not adjusted for inflation).

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.  Household net worth, as a percent of GDP, is higher than the peak in 2006 (housing bubble), and 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.

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 Q2 2015, household percent equity (of household real estate) was at 56.3% - up from Q1, and the highest since Q3 2006. This was because of an increase in house prices in Q2 (the Fed uses CoreLogic).

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 56.3% equity - and several million still 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 increased by $38 billion in Q2.

Mortgage debt has declined by $1.26 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 Q2, and somewhat above the average of the last 30 years (excluding bubble).