Household Net Worth Takes Record Plunge

Fourth quarter 2008 marks big drop in wealth

From October to December in 2008, household net worth took the biggest dive on record. Overall, households in the United States lost $5.1 trillion, the largest amount lost since the government started keeping records in 1952.

That drop was almost twice the decrease that occurred in third quarter 2008.

Economy cut in half?

Total net wealth in the U.S. now stands at $51.5 trillion. U.S. household net worth has fallen for five consecutive quarters, and dropped a total of $12.8 trillion. Some personal loans aren’t included in net wealth.

The decline almost matches the total size of the U.S. economy, which was $14.2 trillion in the last three months of 2008, says the Bloomberg Press.

Savings and stocks

Analysts believe this drop in wealth will cause households to save money in coming months. Americans’ rate of saving has already increased significantly throughout 2008 and the beginning of this year. The decline in wealth is primarily being linked to dropping stock prices and home values.

“I don’t think it’s any surprise that wealth has declined so much given the bad news out of markets and house prices,” said Jonathan Basile, an economist at Credit Suisse Holdings USA Inc. in New York. “This decline in wealth is a headwind for spending and it’s a big reason to be cautious and to save.”

Down with debt

Households are not only saving more, they are taking out fewer personal loans, using less credit and borrowing less in general.  For the first time on record, debt dropped. Total dept fell at a 2 percent annual pace during fourth quarter 2008.

Mortgage borrowing also continued to decrease last quarter. It fell at a 1.6 percent annual pace, after decreasing at a 2.3 percent rate in the quarter before, the U.S. Federal Reserve said.

Housing still in crisis

Home values continue to plummet as foreclosures continue. Real-estate-related household assets fell by $937.1 billion last quarter. In third quarter 2008, they fell $681.2 billion. Foreclosures in February were 30 percent higher this year than last year, despite several large companies placing moratoriums on foreclosures.