Household Net Worth Rises in Third Quarter. Mortgage Borrowing Down $370 Billion

In what could be viewed as another indication that thingsrnare getting better, the Federal Reserve reported today that net household worthrnrose 5 percent during the third quarter of 2009.

The Fed's quarterly Flow of Funds Report said that the netrnworth of U.S. households rose $2.7 trillion during the quarter to $53.4rntrillion.  The net worth is therndifference between the value of a household's assets and its liabilities.  Net worth also grew during the secondrnquarter.

Weak household wealth has been viewed as contributing to thernrecession by holding down consumer spending which is the engine of the U.S.rneconomy.  It is expected that the newrnfigures will help boost confidence in the economy.

These figures, however, are well below the peak recorded inrn2007 when household net worth was valued at $65.3 trillion.  Still, the third quarter figures were anrnimprovement of $4.9 trillion over from the trough recorded earlier this year.

Household debt was down at a 2.5 percent annual rate fromrnthe second quarter as levels of mortgage and consumer debt fell.  This was the fifth consecutive quarter thatrnhousehold debt was down.

Equity in household real estate rose to 38 percent from anrnall-time low of 33.5 percent earlier this year. rnThis was due to a slight increase in real estate values and a 3.5 percent decline inrnmortgage debt.  As 31 percent ofrnhouseholds that own property do not have mortgages, equity per mortgage is actuallyrnfar lower than these figures would indicate.

Business debt was down 2.5 percent butrnthe federal government's debt, not surprisingly, rose 21 percent (annualized)rnduring the quarter, down from the 28 percent increase recorded in the secondrnquarter.

Households are also reining in new borrowing.  Mortgage borrowing was down $370 billion inrnthe third quarter (page 8) and consumer borrowing fell by $81.6 billion.  This is the sixth consecutivernquarter mortgage borrowing has fallen and the fourth quarter of declines forrnconsumer borrowing.

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