A new report from The Federal Reserve (Fed) shows that from 2019 through 2022 rising home valuations, increased stock ownership and inflation pushed the net worth of American households to new heights.
Strikingly, the rise in net worth occurred during and immediately after the pandemic recession. Over 20 million Americans lost their jobs in the recession. However, the economy rapidly recovered thanks in part to $5 trillion in federal aid.
The median increase for household wealth was 37 percent, according to the 2022 Survey of Consumer Finances (SCF). Adjusted for inflation, that put the median net worth at $193,000.
That is the quickest rise in three decades.
The Fed has conducted these surveys every three years since 1983.
Housing Good News – Bad News
The housing market was a double-edged sword, according to the survey. Increased valuations were a major contributor to gains in net worth. However, higher home prices prevented many consumers from becoming buyers.
The price of the median home in 2022 was over four and a half times the median family income. This year, prices have continued to climb. In addition, mortgage rates are rising. The current rate for a 30-year fixed rate mortgage is around 8 percent depending on where you live. That is close to the highest rate since August 2000, according to Bankrate.
Stock Ownership Soars
Though more people are priced out of the housing market – more people are buying into the stock market, according to the SCF.
Well over half of American households (58 percent) owned stock in 2022. That ownership came through mutual funds and other accounts in addition to direct investments in individual stocks.
That is the highest stock ownership in history.
Buying individual stocks led the equity ownership surge. During the survey period, direct stock ownership rose from 15 percent to 21 percent. That is the first time stock ownership has been that high since the dot com boom in the early 2000s.
The median value of household stock holdings was $15,000. However, the average value of direct stock ownership was $404,000. The difference between the median and average figures is influenced by the holdings of wealthier families.
Wages vs. Inflation
In addition to an upturn in home valuations and stock ownership – wages grew during the survey period. The median gain in income amounted to three percent. Much of that rise can be attributed to increased incomes among higher income wage earners. Nevertheless, The Fed found that wages did not keep up with inflation during that time.
However, since the SCF concluded at the end of 2022, a change has developed.
Wages began outpacing inflation early this year, according to Statista records. Previously, wages had not grown faster than prices since March 2021.
In addition, the trend is continuing. In August, inflation amounted to 3.7 percent while wages grew 5.3 percent.
Impact on U. S. Economy
A consumer based economy, such as America’s, depends on strong consumer spending. In fact, over 68 percent of GDP is consumer spending.
In addition to staples, Americans continue to shell out for entertainment, meals out, travel, and other goods and services.
The durability of the American consumer is credited with the sustained growth of the economy. Of note, third quarter figures show the economy growing at an annual rate of four percent.
Gap Remains
Rising pay rates lifted all boats, but it lifted some more than others. Wages increased most for high income earners, according to the SCF, widening the income gap.
Median wealth for the richest 10 percent of American households reached $3.8 million in 2022.
Meanwhile, the super rich continue to pad their net worth statements. Fortune Magazine recently reported that the number of centibillionaires is rising.
The gap between wealthy households and middle class and poor households has steadily grown for decades. That trend remained unchanged, the survey reports.
Even though wealth inequality remains, the Fed reports that some progress has been made.
Black and Hispanic households raised their net worth, on a percentage basis, more than white households. However, dollar amounts are a different story.
Black households increased in median net worth by 60 percent. However, in dollars, the median net worth for Black households was $45,000. Hispanic households saw their median net worth increase 47 percent to $62,000. While white household median income rose 31 percent to $285,000.
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