US Household Net Worth Plunged a Record $3.8 Trillion During Fourth-Quarter Stock Tumult

March 7, 2019 by Dan McCue
The Seattle area has been building lots of new housing, but not much of it has been affordable to the middle class. (Ken Lambert/Seattle Times/TNS)

The net worth of America’s households fell by a record $3.8 trillion at the end of 2018, pulled down by sharp declines on Wall Street that briefly pushed the market into bear territory, the Federal Reserve said Thursday.

The bracing news, part of the Federal Reserve’s latest Financial Accounts of the United States report, reveals just how deeply the market slide that began in October dug into Americans’ pockets.

At the time, uncertainty over the trade dispute between the U.S. and China and other segments of the economy stoked investor concerns that the Fed would ramp up its interest rate increases.

Americans’ net worth fell at the highest level since the financial crisis in the fourth quarter of 2018 as sliding stock market prices ate into the household balance sheet.

By the time the market began to recover in late December, household wealth had dropped to $104.3 trillion, a decline of 3.4 percent.

A chunk of that was attributed to the drop off in value of corporate equities, which fell by $4.6 trillion.

As bad as that was, the drop was offset somewhat by a $300 billion increase in real estate values, the report said.

Overall, financial assets totaled just over $85 trillion at the end of the year, while real estate value was $29.2 trillion.

The Federal Reserve said while all this was going on, household debt increased by an annual rate of 2.9 percent in the fourth quarter, while consumer credit grew at an annual rate of 6.2 percent and mortgage debt grew at an annual rate of 2.1 percent.

The Fed found that nonfinancial business debt, essentially debt owed on industrial or commercial loans, rose at an annual rate of 3.8 percent in the fourth quarter of 2018, though that was down from a 3.9 percent annual rate in the previous quarter.

Federal government debt increased 2.5 percent at an annual rate in the fourth quarter of 2018, down from a 6.8 percent annual rate in the previous quarter.

State and local government debt contracted at an annual rate of 2.2 percent in the fourth quarter of 2018, after contracting at an annual rate of 1.3 percent in the previous quarter.

If there is a silver lining to the report it’s that the stock market has largely recovered the value it lost during the last three months of 2018, meaning investors have largely recovered their end-of-year losses.

However that optimistic note is somewhat offset by the widespread cooling of the real estate market. According to zillow.com, the cooling of the housing market that started last year is now widespread, happening across 30 of the largest 35 metro areas.

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