Household Net Worth Soars To Record High In 2021

The net worth of American households surged to a new all-time high in the first quarter of 2021, buoyed by a faster than expected recovery of the US economy from the COVID-19 recession. Last week, the Fed reported that household net worth surged $6.7 trillion or 3.8% in first-quarter 2021 from fourth-quarter 2020 to reach $136.9 trillion. Wow!

Of the total increase of $6.7 trillion in household net worth in the 1Q of this year, $3.2 trillion came from equity holdings, while $1 trillion was due to the continued escalation in real estate values. The S&P 500 Index gained 7% for the quarter, and most forecasters predict more gains this year.

From a historical perspective, household net worth has nearly doubled from its level of a decade ago when the nation was still escaping the throes of the 2008-09 financial crisis. This time around, we are rebounding from the throes of the coronavirus pandemic and recession. And the current rebound is a whopper!

The US economy grew a stunning 6.4% (annual rate) in the first quarter of 2021 buoyed by strong consumer spending. A sharp reduction in new coronavirus cases, nationwide COVID-19 vaccinations, and the accelerating removal of economic and other day-to-day restrictions have resulted in a faster than expected reopening of the economy.

Meanwhile, the housing market has remained robust primarily due to record-low mortgage rates. The Fed adopted an ultra-dovish monetary stance and reduced its benchmark interest rate to near zero (0-0.25%) in March 2020. This move significantly reduced mortgage rates, enabling more consumers to buy houses. The strong demand has significantly strengthened the real estate sector. In fact, there is now a shortage of houses on the market.

As it turned out, the pandemic-led devastation of the US economy last year was not as severe as most forecasters expected. In fact, US household net worth actually climbed significantly in the second, third, and fourth quarters of 2020 and first-quarter 2021, as noted above – after dropping 5.6% in the first quarter of 2020. Of course, unprecedented fiscal and monetary support (stimulus checks, etc.) helped in reviving household net worth, despite the pandemic.

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