In the Wall Street Journal today, they report the findings of the Federal Reserve in the article Typical U.S. Family’s Net Worth Edged Up Only 1.5% in ’01-’04 [WSJ].

Source: WSJ

Download the report [pdf]

A booming housing market boosted the typical American family’s wealth between 2001 and 2004, but stagnant stock prices and rising debt offset many of those gains.

The report, the most comprehensive survey of household wealth, also found a widening of the gap between households at the top and the bottom of the economic ladder. “While the typical American household basically ran in place, less affluent households actually lost ground,” said Stephen Brobeck, executive director of the Consumer Federation of America.

The net worth of the typical family in the richest 10% rose to $831,600, a 6.5% increase from 2001, adjusted for inflation. In contrast, the net worth of the typical family in the bottom 25% fell 1.5% to $13,300.

In CNN’s Fed wealth survey: How do you stack up? – Feb. 23, 2006 Americans’ net worth grew between 2001 and 2004, but not nearly as strongly as it did between 1998 and 2001, according to the Federal Reserve’s triennial Survey of Consumer Finances released Thursday.

All stats in the current study were based on the period 2001 to 2004

  • Net worth – up 1.5% versus 10.3% from 1998 to 2001. The increase in homeownership caused the current gains but much was offset by the increase in debt.

  • Income – wages fell 6.2% after adjusting for inflation.

  • Assets – increased 10.3%

  • Debt – increased 33.9%

In other words, the sharp rise in housing prices has done little to increase the net worth of individuals because the gains have been largely offset by the increase in debt. With incomes falling over this period, real estate price gains would be expected to be tempered. Going forward, this would be expected to limit further significant appreciation in the near term.

2 Responses to “And The Survey Said… Its Not How Much You Have, Its How Much You Can Borrow”

  1. Larry Littlefield says:

    The income decline is startling when you consider the definition of income used — cash only, whether from employment, investments, retirement income, or government programs.

    The private sector has been slashing worker compensation for some time, but in the form of lower non-cash income — 401K and pension contributions by the employer, and health insurance. People have to live on the cash, while prospective workers will not appreciate these non-cash income sources until they are in their 50s.

    It may be that total compensation has fallen a ton, and is still falling.

    Which brings us back to Karl Marx’s famous “contradiction.” Each business may profit from cutting its employees earnings, but businesses and general need to turn around and sell products and services to those same workers. We’ve beaten the contradiction with rising debt linked to the housing bubble. So far.

  2. pcampbell says:

    Well said Larry. Every action has a reaction; either positive or negative.