Rebounding from the fourth quarter in 2018, in which household net worth fell by 3.7 percent, the first quarter witnessed a 4.5 percent increase in net worth – an overcompensation for the drastic end-of-year decline.
The first quarter jump – bringing the total household net worth to $108.6 trillion – is the largest quarterly increase since the fourth quarter of 2004.
The rise in net worth – which is measured by adding total assets and subtracting all liabilities – can largely be attributed to an increase in corporate equity value. Household investments in corporate equity increased in value by roughly 12.4 percent due to a strong rebound from the stock market. In fact, the S&P 500 is up by more than 14.7 percent in the past six months.
In addition, household-owned real estate has risen in value; in the first quarter, household real estate equity spiked by 1.7 percent. This is contrary to the fact that housing prices have been growing at a quickly declining rate for over a year. Even still, economist Alan Maguire believes that this is nothing to worry about.
“Housing values are a funny thing — the best way to think about them is jumping in a pool and floating in the water,” Maguire said. “If someone takes out half the water, you’re still floating in the pool, you just go back down. And if someone puts more water back in, so do you. Once you’re in the housing pool, you should not be all that concerned about your house value because if the house your living in goes up by 25 percent, so do all the other houses.”
Yet even with their increase in net worth, households seem to be spending less. The household saving rate rose .2 percent quarter-over-quarter, climbing from 6.5 to 6.7 percent. This decrease in borrowing could signal a short-term reduction in consumer spending, but because consumers are saving more now and paying off debt, they will be able to spend more in the long-term.
“Individual consumer debt has dropped off a bit,” Maguire continues. “That’s generally a good thing — it drops consumer spending, but people paying off their credit cards is a good thing because it means they can spend more next year. People are paying off debt and putting aside more money today, which has a negative short-term effect, but it has positive long-term effects.”
Although there are some uncertainties about the future of the economy, consumer behavior, and political factors, Maguire is bullish on the future of household net worth. “Whether or not this is the hot point and it goes down next quarter, I would argue that it’s a long term trend — a very positive trend,” he said.
This story was originally published at Chamber Business News.