Sonoma Housing Bubble

Pulling the cork out of Sonoma's bubbly housing foolishness

Friday, February 24, 2006

You're Not All That After All


"After totaling up both sides of the ledger, the median net worth of American households rose just 1.5 percent over the three years measured, to $93,100, according to the Fed's report, which is compiled every three years to provide a portrait of family finances. "

"The only weaker gain in wealth recorded by the Fed was in its first such survey, in 1989-92, when median household net worth dropped 5.2 percent during a period that included the recession of 1990-91."

"U.S. families' wealth stagnated during the economy's recession and recovery from 2001 through 2004, as lackluster wage growth, sagging stock prices and rising debt levels offset the gains from higher home values, the Federal Reserve reported Thursday in its latest Survey of Consumer Finances."

"Americans may feel much richer because of soaring home prices, but they're not. Wealth, or net worth, measures the value of a household's assets minus its debts - such as mortgages, car loans, student loans and credit card balances.

And debt climbed steadily during the survey period, as the Fed slashed interest rates to stimulate borrowing and spending in rocky economic times."

``Home appreciation was offset by lousy wage growth and debt accumulation,'' said Jared Bernstein, senior economist at the Economic Policy Institute, a think tank focused on labor issues."

"Median family incomes rose just 1.6 percent from 2001 through 2004, to $43,200, the report said. That marked the weakest results since a 6.9 percent drop in the 1989-92 period."

"While surging home values have supported consumer spending in recent years, analysts worry about the economic impact if, as expected, the home price surge begins to slow this year."

"The Fed survey found that debts as a percent of total assets rose to 15 percent in 2004, up from 12.1 percent in 2001. Mortgages to finance home purchases were by far the biggest share of total debt at 75.2 percent in 2004, unchanged from the 2001 level."

"There was concern that families may start to feel even more squeezed as the cost of financing their debts increases along with rising interest rates."

"Families spent 14.4 percent of their incomes on debt service in 2004, up from 12.9 percent in 2001. And the borrowing has only accelerated since 2004. Total household debt grew to a record $11.4 trillion in last year's third quarter, which ended Sept. 30, shooting up at the fastest rate since 1985, according to a separate Fed report."

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