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Home Equity Jumps 2.5 Percentage Points in Q1

Household net worth jumped by $3 trillion in the first quarter as real estate values grew $836 billion, the Federal Reserve reported Thursday in its quarterly ""Flow of Funds"":http://www.federalreserve.gov/releases/z1/Current/ report.

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With a drop in mortgage debt, owners' equity in real estate increased a sharp 2.5 percentage points to its highest level since 2007.

While the first-quarter increase in real estate assets was twice that of the fourth quarter last year, stock investments increased $1.02 trillion in the first quarter, more than three times the increase in the fourth quarter.

And, as real estate values improved, outstanding mortgage debt--including home equity loans and lines of credit--dropped $53.2 billion to $9.38 trillion. Owners' equity as a percentage of real estate value rose to 49.2 percent from 46.7 percent.

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The change in household balance sheets reflects the positive movement in the stock market and an increasing reluctance of households to take on more debt. Mortgage debt fell just $10 billion in the fourth quarter.

Owners' equity as a percentage of real estate value has been on a steady upward trajectory since dropping to 36.3 percent in the first quarter of 2009. It rose to 46.7 percent at the end of 2012. The 2.5 percentage point increase in the first quarter of this year is the fastest quarter-over-quarter growth this century. Even with the increase, though, the equity percentage remains sharply lower than 57.7 percent in 2000.

The improvement in household balance sheets came despite a first-quarter drop in disposable personal income, a reflection of the rollback of the cut in payroll taxes which ended at the start of the year. Disposable personal income--essentially after-tax income--fell $237 billion in the first quarter to just under $12 trillion. Consumers did not borrow to compensate for the drop in personal income. Indeed, consumer credit outstanding declined $5.8 billion in the first quarter as all liabilities fell $59.1 billion.

The increase in household assets--$2.94 trillion--was driven by the improvement in stock and real estate, though traditional time and savings accounts increased $66.7 billion.

_Hear Mark Lieberman on P.O.T.U.S Radio (Sirius-XM 124) Friday at 8:45 a.m. and again at 12:20 p.m. Eastern._

About Author: Mark Lieberman

Mark Lieberman is the former Senior Economist at Fox Business Network. He is now Managing Director and Senior Economist at Economics Analytics Research. He can be heard each Friday on The Morning Briefing on POTUS on Sirius-XM Radio 124.
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