US household net worth surges in closing months of 2020

Washington

US HOUSEHOLD net worth soared in the closing months of 2020 to a fresh record, driven by rising stock prices and residential real estate values after the government took unprecedented steps to ease the financial fallout from the pandemic.

Household net worth increased by US$6.9 trillion or 5.6 per cent to US$130.2 trillion in the fourth quarter, a Federal Reserve report released on Thursday showed.

Household debt increased at an annual rate of 6.5 per cent, the fastest in 13 years, showed data compiled by Bloomberg.

Record-low mortgage rates attracted first-time home-buyers as well as those looking for more space.

A measure of home prices in 20 US cities surged by more than 10 per cent in December 2020 from a year earlier. At the same time, stocks continued to rally.

The report said the value of equities increased by almost US$4.9 trillion, while the value of real estate held by households climbed by US$915 billion.

Mortgage debt grew at an annual rate of 5.2 per cent after rising 5.7 per cent in Q3, the biggest back-to-back increases since 2007. In addition to the jump in wealth from homes and stock portfolios, Americans also saw another big jump in savings.

This provides consumers with plenty of firepower for spending and helps explain why economists are projecting stronger economic growth figures this year.

Net savings for all of 2020 increased to a record US$2.85 trillion, more than double the previous peak in 2018.

But the data also obscures the unevenness of the economic recovery.

While the pandemic has led to a surge in savings and opportunities for many Americans to buy a home or invest, the downturn has disproportionately impacted low-income workers, many of whom are struggling to pay their rent.

Business debt increased by US$35.2 billion in the October-December period from the prior quarter, or at a 0.8 per cent annualised rate, to a total of US$17.72 trillion.

Federal debt outstanding increased US$628 billion, or an annualised 10.9 per cent, to US$23.6 trillion.

President Joe Biden plans to sign a US$1.9 trillion stimulus bill this week, which will lead to even higher levels of government debt.

Consumer credit not including mortgage debt rose almost US$24 billion in Q4. BLOOMBERG