Pandemic gains in American wealth are melting away
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Low-interest rates giveth, high-interest rates taketh away.
What happened: American households saw the third consecutive quarterly decline in net worth during Q3, as stocks were pummeled by rising interest rates.
Why it matters: Household net worth — which includes the value of assets such as 401(k)s and residential real estate — is a ballpark estimate for the aggregate wealth of Americans.
- Economists have long theorized that perceptions of net worth influence economic decisions, as rising wealth levels help people feel more confident about spending money. This relationship is known as the wealth effect.
By the numbers: Real household net worth fell roughly 9% compared to the third quarter of 2021, to $143 trillion.
- The sharp decline in stocks drove the downturn, with the value of corporate equities falling 21% — to $24.33 trillion — compared to the third quarter of 2021.
Flashback: The Federal Reserve helped lead government efforts to insulate the economy from the pain of the pandemic, axing interest rates to near zero and pumping trillions of dollars into financial markets.
- Such programs did help ward off a deep downturn, but they also were widely seen as helping ignite the stock market and residential real estate booms, which briefly supercharged levels of wealth among Americans.
Worth noting: These numbers show the "aggregate" net worth, which in reality, is spread unequally over the U.S. populace.
- Given that the sharpest decline in wealth was concentrated in the value of corporate stocks — and the vast majority of stock wealth is owned by the wealthiest households — the most affluent have borne the brunt of the recent decline in wealth.
What we're watching: The housing market.
- A sharp downturn in home prices — which some analysts forecast could happen in the next few quarters — could have a larger impact on the financial position of middle-class families, since housing is typically their largest asset.
- Home prices have stopped rising, but an expected pullback due to high mortgage rates is taking some time to work its way through the system: Housing values were still up 13% compared to Q3 2021, the Fed said.
