Household Wealth Falls in 2009 Quarter 1
The Federal Reserve released its quarterly report on household wealth earlier this morning. In the first quarter of 2009, household wealth dropped. This represents the 7th straight quarterly drop, keeping in line with losses during the recession. MarketWatch reports on the drop in household net worth:
Household net worth fell at a 9.9% annual rate in the first three months of the year to $50.4 trillion, the lowest in more than four years. Net worth — assets minus liabilities — peaked at $64.4 trillion in the spring of 2007, the Fed said in its quarterly flow of funds report. …
Households saw their assets drop by $1.4 trillion in the first quarter, including a loss of $448 billion on their real estate and $1 trillion on their holdings of corporate equities, mutual funds and pension reserves.
As you can see, a substantial portion of the losses in household net worth are related to home values. As home values fall, so too does net worth. Of course, even more losses were logged as investment portfolios fell. However, the silver lining to the investment portfolio story is that the stock market is expected to recover over the long term, so those who continue investing will see dramatic gains later.
With the real estate losses, it underscores an important point about a primary residence: It should be viewed more as a long-term purchase than as an investment. Besides, by the time you pay interest on your mortgage for any number of years, you are most likely to find that any “investment” return has been eaten away. It is a better idea to think of your primary residence home as a purchase, rather than an investment. At any rate, even if you think of it as an investment, you should remember this truth: Any investment can decline in value. Real estate is not immune to the risk of loss.
[...] Federal Reserve just released a report outlining the state of household wealth in the U.S. The report looks at the changes in net worth of American households in the first quarter of 2009. [...]
[...] during a recession is the fact that household wealth is declining. For the 7th straight quarter the average net worth of the American household has fallen . Falling home values and losses in investment portfolios (mainly in the form of retirement [...]