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Stagnant Progress in Wealth Accumulation Among American Households




Recent data indicates that the wealth of U.S. households has seen minimal growth over the past two years. As of mid-last year, household wealth just surpassed its previous peak from early 2023, only to decline again in the following quarter. Despite gains in the stock market and modest increases in housing prices towards the end of 2023, it is anticipated that the year-end data, expected in March, will show a slight uptick in wealth. However, the likelihood of significant future growth remains limited.


Comparatively, the growth in household wealth was notably stagnant from early 2023 through to the third quarter, a stark contrast to the dramatic 30% increase from the end of 2019 to early 2022. This surge coincided with the economic recovery post-pandemic, marking one of the largest wealth increases in a similar timeframe on record.


Interestingly, there has been a noticeable shift in the distribution of wealth. Over recent years, wealth inequality appears to have reduced, thanks in part to the rapid increase in housing prices. While the impact of real estate equity on wealth distribution varies, it has seemingly played a role in reducing inequality recently. With the majority of households owning homes, the rise in housing prices has benefitted a broader population than the increase in stock prices. Moreover, even among lower-income households that typically do not own homes, real estate equity constitutes a significant portion of their wealth due to their limited asset holdings.


The distribution of wealth gains has been uneven across different income groups. Lower-income groups led the wealth gains during the post-pandemic period, with more substantial growth in the bottom 60% of the income distribution compared to the top 40%. However, from early 2022 to the third quarter of 2023, wealth growth nearly followed a reverse order, with the most significant increases at the lower end and declines at the top.


The spike in housing prices post-pandemic increased the share of wealth from real estate equity across all households, particularly those in the middle-income bracket where homeownership is more prevalent. In contrast, for lower-income groups, homeownership is less common, and for higher-income groups, a larger proportion of their assets are in stocks, small businesses, and other forms of investments.


This situation, however, may not be sustainable. Housing prices are considered significantly overvalued, and it is uncertain whether they will decrease to restore balance or experience slow growth in the coming years. Either scenario could reduce the proportion of homeowners’ equity in overall wealth, except if the stock market also declines simultaneously.


Debt dynamics have also evolved, with total debt increasing by about 22% since the pandemic, compared to a 30% increase in wealth. Notably, consumer debt, which includes non-real estate-backed loans like credit cards and student loans, has seen a greater increase among higher-income households. This trend indicates a shift in debt distribution, with lower-income households managing to stabilize their consumer debt growth, possibly due to reduced credit availability.

The future of borrowing is uncertain, depending on consumer attitudes and lender behavior. Although debt burdens are historically low, they are expected to increase as debts are refinanced at higher rates. Lending standards have tightened over the past years, but it is unclear how long this trend will continue.


In summary, the outlook for household wealth growth in the U.S. is modest, with significant risks due to uncertainties surrounding house and stock market prices. The recent shifts in wealth distribution and debt dynamics reflect these underlying economic uncertainties.


Source: Moodys Analytics, MMCG

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