Historic Asset Boom Passes by Half of Families
The decadelong economic expansion has showered the U.S. with staggering new wealth driven by a booming stock market and rising house prices. But that windfall has passed by many Americans. The bottom half of all U.S. households, as measured by wealth, have only recently regained the wealth lost in the 2007-2009 recession and still have 32% less wealth, adjusted for inflation, than in 2003, according to recent Federal Reserve figures. The top 1% of households have more than twice as much as they did in 2003. This points to a potentially worrisome side of the expansion, now the longest on record. If another recession comes, it could be devastating for people who have only just recovered from the last one.
Wealth, also called net worth, is the value of assets such as houses, savings and stocks minus debt such as mortgages and credit-card balances. Net worth is different from income, the cash a household receives each month such as wages, dividends and government benefits. It is common for countries to have a highly skewed wealth distribution. Nonetheless, in the U.S., wealth inequality has grown faster than income inequality in the past decade, making the current wealth gap the widest in the postwar period, according to a study by Moritz Kuhn, Moritz Schularick and Ulrike Steins, economists at the University of Bonn.
Behind this trend: More than 85% of the assets of the wealthiest 1% are in financial assets such as stocks, bonds or stakes in private companies. By contrast, slightly more than half of all assets owned by the bottom 50% of households comes from real estate, such as the family home. Economic and regulatory trends over the past decade have not only favored stock over housing wealth, but have also made it harder for the less affluent to even buy a home.
Until the mid-2000s, the net worth of households across the wealth distribution increased at roughly the same pace, keeping inequality stable. That started to change when housing prices took off in the early 2000s. For the bottom 50%, rising home values were more than offset by mortgage debt, which almost doubled between 2003 and 2007. For the top 1%, debt was flat between those years. When the housing bubble burst, many less-affluent households saw housing wealth wiped out; some lost their homes altogether.
Today, the bottom half of American households aren’t carrying so much debt compared with the prerecession peak, after adjusting for inflation. And starting in 2012, a recovery in home prices has allowed their net worth to inch up. But house prices, adjusted for inflation, have yet to reach their 2006 peak, according to the S&P CoreLogic Case-Shiller index. Meanwhile, a decade of rising equity prices has buoyed the 1% wealthiest households, pushing the value of their financial assets up 72% since the recession, after adjusting for inflation.
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https://www.wsj.com/articles/historic-asset-boom-passes-by-half-of-families-11567157400 (paid subscription)