U.S. household wealth regains pre-recession peak

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WASHINGTON (AP) — It took 5½ years.

Surging stock prices and steady home-price increases finally have allowed Americans to regain the $16 trillion in wealth they lost to the Great Recession. The gains are helping support the economy and could lead to further spending and growth.

Household wealth amounted to $66.1 trillion at the end of 2012, the Federal Reserve said Thursday. That was $1.2 trillion more than three months earlier and 98 percent of the pre-recession peak.

Further increases in stock and home prices this year mean that Americans’ net worth has since topped the pre-recession peak of $67.4 trillion, private economists say. Wealth had bottomed at $51.4 trillion in early 2009.

“It’s all but certain that we surpassed that peak in the first quarter,” said Aaron Smith, senior economist at Moody’s Analytics.

Household wealth, or net worth, reflects the value of assets such as homes, stocks and bank accounts minus debts such as mortgages and credit cards. National home prices have extended their gains this year. And the Standard & Poor’s 500 index, a broad gauge of the stock market, has surged 8 percent since Jan. 1.

Some economists caution that the recovered wealth might spur less consumer spending than it did before the recession. Dana Saporta, an economist at Credit Suisse, notes that the value of home equity Americans are cashing out has fallen 90 percent in six years.

And since the housing bust, when home values fell broadly for the first time in decades, many homeowners are skeptical that higher prices will last, Ms. Saporta said. They won’t necessarily spend more as a result.

The rebound in wealth has benefited mostly wealthier Americans. The Dow Jones industrial average has just set a record high, and roughly 80 percent of stocks are held by the richest 10 percent of households.

And for the past five years, middle-class Americans have sold stocks and missed out on much of the rebound. In the October-December quarter, Americans dumped nearly $466 billion in stocks and bought $229 billion in bonds, the Fed’s report showed.

For most middle-class Americans, home equity is their largest source of wealth. National home values remain about 30 percent below their peak.

Homes accounted for two-thirds of middle-class assets before the recession, estimates economist Edward Wolff of New York University. Among all U.S. households, they accounted for only one-third of assets.

Still, economists expect the regained wealth to contribute further to the economic recovery.

“It should boost consumption, because as people feel wealthier, they tend to spend more,” Ms. Saporta said. “It doesn’t necessarily mean that households will go on a spending spree.”

Carl Riccadonna, an economist at Deutsche Bank, is a bit more optimistic. He thinks higher home values and some easing of credit requirements by banks will lead Americans to cash out more of their home equity.

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