Thursday, December 10, 2015

Fed's Flow of Funds: Household Net Worth Declined in Q3

by Bill McBride on 12/10/2015 01:23:00 PM

The Federal Reserve released the Q3 2015 Flow of Funds report today: Flow of Funds.

According to the Fed, household net worth decreased in Q3 compared to Q2:

The net worth of households and nonprofits fell to $85.2 trillion during the third quarter of 2015. The value of directly and indirectly held corporate equities decreased $2.3 trillion and the value of real estate rose $482 billion.
Household net worth was at $85.2 trillion in Q3 2015, down from $86.4 trillion in Q2.  The decline was due to the decline in the stock market in Q3.

The Fed estimated that the value of household real estate increased to $21.8 trillion in Q3 2015. The value of household real estate is still $0.7 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 Q3 2015, household percent equity (of household real estate) was at 56.7% - up from Q2, and the highest since Q2 2006. This was because of an increase in house prices in Q3 (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 56.7% 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 $48 billion in Q3.

Mortgage debt has declined by $1.27 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 Q3, and  is somewhat above the average of the last 30 years (excluding bubble).