Another quarter, another record high in (1%er) household net worth.
The Fed's latest Flow of Funds report released at noon today showed the latest snapshot of the US "household" sector as of June 30 2021, which confirmed that one year after the biggest drop in household net worth on record when $8 trillion was wiped out in Q1, 2020, in the 2nd quarter of 2021 the net worth of US households soared by another $5.85 trillion, or 4.3%, rising to a new all time high of $141.7 trillion.
As has traditionally been the case, real estate ($34.9 trillion) and directly and indirectly held corporate equities ($47.0 trillion) were the largest components of household net worth. Meanwhile, household debt (seasonally adjusted) was $17.3 trillion.
This means that over the past 12 months, US household net worth has increased by:
- Q2 2020: $7.92TN
- Q3 2020: $4.26TN
- Q4 2020: $7.9TN
- Q1 2021: $5.1TN
- Q2 2021: $5.85TN
... a grand total of $31 trillion. And since the bulk of this wealth goes to a fraction of the wealthiest 1% (see chart at the bottom), it means that the covid pandemic has been the biggest wealth transfer in history, making America's richest even richer.
Looking at the composition of the wealth change, $3.54 trillion came from a gain in stocks, $1.2 trillion was from an increase in real estate values - the biggest quarterly increase in housing values on record - and another $1.1 trillion coming from "other sources."
It wasn't just housing and real-estate: net private savings grew at an annualized pace of almost $2.9 trillion in the second quarter after a $4.8 trillion surge in the prior quarter -- which while still a high number, suggests that almost $2 trillion in excess savings have already been spent. Excess savings have been a key driver of consumer spending, including last quarter, where consumer outlays jumped at one of the fastest paces on record.
Of course, in addition to assets, liabilities also grew, and in Q2 2021 household debt grew at a 7.9% SAAR, a more rapid pace than in previous quarters as home mortgages surged by 8.0%, spurred by rising home prices and sale activity as well as by the Fed keeping borrowing costs near zero. That’s led to record-low mortgage rates, which have bolstered demand for homes. The median selling price for previously owned homes is at a record high. Homeowners’ real estate holdings minus the change in mortgage debt rose $879.7 billion (a positive value indicates that the value of real estate is growing at a faster pace than household mortgage debt).
Meanwhile, nonmortgage consumer credit increased by 8.6%, as credit cards, auto loans, and student debt all increased.
Nonfinancial business debt grew at a rate of 1.4%, reflecting continuing growth in commercial mortagages, nonbank loans, and corporate bonds and a decline in nonmortgage depository loans. Federal debt rose 9.6%. State and local debt increased 3.1%. As GDP continued to grow, the ratio of nonfinancial debt to GDP edged down a bit further. In the second quarter of 2020, the ratio had spiked, driven by the drop in GDP and the expansion in federal debt related to the fiscal stimulus.
Looking at the various components of nonfinancial business debt, nonmortgage depository loans to nonfinancial business decreased $143 billion in the first quarter. Contributing to the decline was the forgiveness of many loans extended under the Paycheck Protection Program (PPP), which more than offset the extension of new PPP loans. However, nonmortgage depository loans declined even excluding PPP loans. More than 400 billion of PPP loans were on the lenders’ balance sheet at the end of the second quarter and thus are still included in our measure of nonfinancial business debt. However, a large fraction of them is expected to be forgiven.
In contrast to nonmortgage depository loans, commercial mortgages and nonbank loans continued to increase. Corporate bonds also increased, though at a slower pace than in the first quarter.
Overall, outstanding nonfinancial corporate debt was $11.2 trillion. Corporate bonds, at roughly $6.6 trillion, accounted for 59% of the total. Nonmortgage depository loans were about $1.0 trillion. Other types of debt include loans from nonbank institutions, loans from the federal government, and commercial paper.
The nonfinancial noncorporate business sector consists mostly of smaller businesses, which are typically not incorporated. Nonfinancial noncorporate business debt was $6.7 trillion, of which $4.7 trillion were mortgage loans and $1.6 trillion were nonmortgage depository loans.
And while it would be great if this wealth increase was spread across most Americans, there is - as usual - a catch as unfortunately, most Americans aren’t benefiting from recent gains in wealth, and while the pandemic has led to a surge in savings and opportunities for many to buy a home or invest while pushing up the financial assets of the "top 10%" to record highs, the downturn has disproportionately impacted low-income workers, many of whom rent and don’t participate in the stock market.
Indeed, the latest data as of Q1 shows that the top 1% accounts for over $41.5 trillion of total household net worth, with the number rising to over $90 trillion for just the top 10%. Meanwhile, the bottom half of the US population has virtually no assets at all. On a percentage basis, just the Top 1% now own a record 32.1% share of total US net worth, or $45.6 trillion. In other words, the richest Americans have never owned a greater share of US household income than they do, largely thanks to the Fed. Meanwhile, the bottom 50% own just 2% of all net worth, or a paltry $2.8 trillion. They do own most of the debt though...
A closer look at the percentile breakdown:
And the saddest chart of all: the wealth of the bottom 50% is virtually unchanged since 2006, while the net worth of the Top 1% has risen by 132% from $17.9 trillion to $41.5 trillion.
Bottom line: the data underscore how the government's fiscal scramble to speed up the "economic recovery" paired with the Fed's continued ultra easy monetary policy have helped to protect and grow the wealth of the richest Americans: those who own assets, and who have seen their net worth hit an all time high... unlike the bottom 50% of Americans who mostly "own" debt.