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Americans poorer than a year ago
Fed reports household net worth down 3.6% in fourth quarter
By Rex Nutting, MarketWatch
WASHINGTON (MarketWatch) -- Considering the impact of higher prices, a bigger debt burden and sagging home prices, Americans were poorer at the end of 2007 than they were the year before, the Federal Reserve reported Thursday.
The net worth of U.S. households fell by $533 billion, or a 3.6% annual rate, in the fourth quarter of 2007, the first time total wealth has fallen since late 2002, the Fed said.
For all of 2007, household net worth rose 3.4% to $57.7 trillion, the slowest growth in five years. After the effects of 4.1% inflation are included, real net worth fell for the year.
The Fed's flow of funds report also confirmed a sharp slowdown in borrowing by households to the slowest growth in 10 years. Household borrowing rose at a 5.6% annual rate, less than half the debt growth seen during the credit boom years in 2003 through 2005. Read the full report.
Borrowing by households for mortgages slowed to a 5% annual rate, also the lowest in 10 years. Borrowing for consumer credit -- mostly credit cards -- slowed to a 4% growth rate.
Despite the slowing in mortgage debt, households' equity in their homes fell for the third straight quarter, dropping by $286 billion, or an 11% annual rate.
The value of homes in the flow of funds report is based on the home price index published by the Office of Federal Housing Enterprise Oversight, which some economists say may understate the drop in home prices because it does not cover homes with nonconforming loans, including those for single-family homes over $417,000.
Household equity fell to a record low 47.9% of home values. Over the past three quarters, the bank or lender owned more of the average house than the "homeowner" did -- the first time this has happened.
Total household assets fell by an annualized $308 billion to stand at $72.1 trillion, while liabilities rose $226 billion to $14.4 trillion. Real estate assets fell by a record $170 billion. Financial assets fell by $254 billion. Mortgage debt increased by $116 billion.
Home-equity loans increased by $26 billion annualized, the smallest increase in five years. For all of 2007, home-equity loans increased by $60.5 billion, about a third of the borrowing seen in 2004.
Disposable personal income increased at a 3.8% annual rate to $10.3 trillion, the slowest growth since the third quarter of 2005, when Hurricane Katrina hit. For all of 2007, disposable incomes rose 5.5%.
Despite all the talk about a credit crunch in the business sector, total business borrowing grew at a 12% annual rate during the quarter, the same as in the third quarter.
Corporations retired a record annual rate of $854 billion of corporate equities in the fourth quarter, including a record $1.3 trillion in purchases from the household sector, $112 billion from pension funds and $75.7 billion from mutual funds. Exchange-traded funds bought a record $263 billion in equities and foreign residents bought $285 billion.
Rex Nutting is Washington bureau chief of MarketWatch.
Americans poorer than a year ago
Fed reports household net worth down 3.6% in fourth quarter
By Rex Nutting, MarketWatch
WASHINGTON (MarketWatch) -- Considering the impact of higher prices, a bigger debt burden and sagging home prices, Americans were poorer at the end of 2007 than they were the year before, the Federal Reserve reported Thursday.
The net worth of U.S. households fell by $533 billion, or a 3.6% annual rate, in the fourth quarter of 2007, the first time total wealth has fallen since late 2002, the Fed said.
For all of 2007, household net worth rose 3.4% to $57.7 trillion, the slowest growth in five years. After the effects of 4.1% inflation are included, real net worth fell for the year.
The Fed's flow of funds report also confirmed a sharp slowdown in borrowing by households to the slowest growth in 10 years. Household borrowing rose at a 5.6% annual rate, less than half the debt growth seen during the credit boom years in 2003 through 2005. Read the full report.
Borrowing by households for mortgages slowed to a 5% annual rate, also the lowest in 10 years. Borrowing for consumer credit -- mostly credit cards -- slowed to a 4% growth rate.
Despite the slowing in mortgage debt, households' equity in their homes fell for the third straight quarter, dropping by $286 billion, or an 11% annual rate.
The value of homes in the flow of funds report is based on the home price index published by the Office of Federal Housing Enterprise Oversight, which some economists say may understate the drop in home prices because it does not cover homes with nonconforming loans, including those for single-family homes over $417,000.
Household equity fell to a record low 47.9% of home values. Over the past three quarters, the bank or lender owned more of the average house than the "homeowner" did -- the first time this has happened.
Total household assets fell by an annualized $308 billion to stand at $72.1 trillion, while liabilities rose $226 billion to $14.4 trillion. Real estate assets fell by a record $170 billion. Financial assets fell by $254 billion. Mortgage debt increased by $116 billion.
Home-equity loans increased by $26 billion annualized, the smallest increase in five years. For all of 2007, home-equity loans increased by $60.5 billion, about a third of the borrowing seen in 2004.
Disposable personal income increased at a 3.8% annual rate to $10.3 trillion, the slowest growth since the third quarter of 2005, when Hurricane Katrina hit. For all of 2007, disposable incomes rose 5.5%.
Despite all the talk about a credit crunch in the business sector, total business borrowing grew at a 12% annual rate during the quarter, the same as in the third quarter.
Corporations retired a record annual rate of $854 billion of corporate equities in the fourth quarter, including a record $1.3 trillion in purchases from the household sector, $112 billion from pension funds and $75.7 billion from mutual funds. Exchange-traded funds bought a record $263 billion in equities and foreign residents bought $285 billion.
Rex Nutting is Washington bureau chief of MarketWatch.
