Household wealth in the U.S. climbed in the fourth quarter, propelled by a gain in home prices that is helping repair family finances.
Net worth for households and non-profit groups increased by $1.17 trillion from October through December, or 1.8 percent from the previous three months, to $66.1 trillion, the Federal Reserve said today from Washington in its flow of funds report.
Household wealth is climbing back to its pre-recession level as the recovery in home values helps Americans overcome higher taxes Congress put in place this year. Federal Reserve policy makers’ plans to keep lending rates low may continue to shore up finances, giving consumers the confidence to keep buying big-ticket items including cars and homes.
“Growing wealth makes people more apt to spend,” Joshua Shapiro, chief U.S. economist at Maria Fiorini Ramirez Inc. in New York, said before the report. “Part of the Fed’s grand plan is hoping that the wealth effect helps growth.”
The value of financial assets owned by American households, including stocks and pension-fund holdings, increased by $784.4 billion in the fourth quarter, today’s Fed report showed.
The gain this quarter may be even bigger as investors have taken tax increases and federal government budget cuts in stride. On March 6, the Dow Jones Industrial Average closed at a record, and the value of U.S. equities has now increased by $1.44 trillion since the end of 2012.
Household real-estate assets climbed by $417.5 billion, according to today’s flow of funds data. Owners’ equity as a share of total household real-estate holdings increased to 46.6 percent last quarter from 45.2 percent in the previous three months.
Underpinning those gains, the housing market is making its way toward recovery. CoreLogic Inc. said last month that the national median single-family home price climbed 10 percent in the fourth quarter from a year earlier, the biggest gain since 2005. Single-family home prices rose in almost 88 percent of U.S. cities in that period as the recovery broadened.
Improving residential real-estate values may support the economy even more than gains in equities. Economists Karl Case, John Quigley and Robert Shiller found that changes in house prices -- and in real estate wealth -- have a bigger impact on consumer spending than the ups and downs of stock prices and financial wealth. Case told Bloomberg News last month that consumer spending would be boosted by $80 billion in 2013 by the rise in home values that has already occurred and homeowners’ expectations that additional gains will come.