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  The Fed’s Report on Household Balance Sheets
Posted Under: Data Watch • Government • Housing • Fed Reserve

 
Every three months the Fed issues its report on the flow of funds, which is a statement on assets, liabilities, and net worth in the various sectors of the US economy: household, business, and government.

The biggest headline from yesterday's report on the third quarter was that household net worth declined $2.4 trillion to $57.4 trillion, a drop of 4.1%.  Some may be worried about the decline, but it's old news and no big deal.  We already knew that the market capitalization of the stocks that trade on the New York Stock Exchange was down $3.3 trillion in Q3, so no one should be surprised about the drop in household net worth.  Since then, equities have generally rebounded since the end of Q3 and if that's sustained, household net worth will rebound as well.  Relative to disposable (after-tax) income, net worth is well down from the peak of 645% in early 2006.  However, at 496% (or, roughly five times annual after-tax income), it's within the historical norm.   

On the housing front, the value of owner-occupied real estate continued to decline in Q3, by $98 billion to $16.1 trillion.  In percentage terms, the value of real estate dipped 0.6%.  Again, no surprise given the recent performance of home prices.  The asset value of residential real estate is now the lowest since 2003.  Meanwhile, home mortgage debt declined $54 billion in Q3 to $9.9 trillion.  Mortgage debt is down $218 billion in the past year and down $730 billion since the peak in early 2008. 

The report shows that home prices are now well below "fair value."  Normally, over the long term, average home values are 30% above replacement cost.  At the peak, in early 2006, that premium was 67%.  Now, home values are only 14% higher than replacement cost, the smallest premium since 1974-75.      
Posted on Friday, December 9, 2011 @ 2:38 PM • Post Link Share: 
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