Friday, March 12, 2010

American's Household Assets Growing Again

In the last year, the total value of household assets has begun to climb again from its low levels in the recent past, according to the Federal Reserve's most recent quarter Flow of Funds reports. Unfortunately, though, the small partial recovery in real estate value is more than dwarfed by the remaining high level of home mortgage debt. See the following post from The Mess That Greenspan Made.

The Federal Reserve released their quarterly Flow of Funds report today that includes data through the fourth quarter of last year and the two charts that have appeared here for a number of years now have been updated and are shown below.

Now a year or so past the worst phase of the financial market crisis, household assets have recovered somewhat but it continues to amaze me how much they declined relative to the asset bubble that burst earlier in the decade.

Thanks to the inflating housing bubble, overall assets never fell between 1999 and 2002 after the stock market bubble burst and then, after 2002, it was "off to the races" again.

This time around, there doesn't yet appear to be a new bubble on the horizon, though technology stocks sure seem to be vying for that position.

As for the American consumer and their mid-decade fascination with real estate, as has been the case for a few years now, the debt seems to linger long after the valuations go away.

After some heavy lifting by the U.S. government in the many ways that they have found to subsidize the housing market, home prices seem to have leveled off, however, the associated debt is coming down only slowly.

While I don't know how the "Home Mortgages" line item above is determined, my guess is that the chart overstates the current amount outstanding due to the hundreds of thousands of borrowers who are now in one form of mortgage limbo or another with their fate already sealed, just the timing needing to be finalized.

Until that time, they still carry a home mortgage at the full amount and the banks still carry the loans at the full amount on their books, otherwise, we'd probably have seen a much larger decline by this point.

This post has been republished from Tim Iacono's blog, The Mess That Greenspan Made.

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