Put these two headlines together from Bloomberg today and you’ve got a good snapshot of the U.S. economic “recovery” to date.
“U.S. Foreclosures to Reach 3.9 Million in Second Record Year.”
“Household Net Worth in U.S. Increases by $2.67 Trillion.”
Let’s look at the bad new first, okay?
Foreclosure filings will hit 3.9 million this year, according to RealtyTrac. That’s a hefty increase from the 3.2 million foreclosure filings in 2008.
Just for the record, things look like they’re getting slightly better. While foreclosure filings in November were above 300,000 for the ninth straight month, they were down about 15% from the July peak and down 8% for October. November marked the fourth straight monthly decline.
And now for the good news.
Household wealth in the United States increased by $2.67 trillion in the third quarter on the back of rising stock prices and a partial recovery in home prices. Net worth for households and non-profits (hey, I know that’s a weird category but it’s how the Federal Reserve tracks wealth in its Flow of Funds report) rose to $53.4 trillion from $50.8 trillion in the second quarter.
In the three months that ended on September 30, a rallying stock market added $1.4 trillion to the total value of stocks and mutual funds held by households. Rising home prices accounted for about $350 billion of the total. The rest of the net increase in household wealth resulted from a continued drop in household debt. Household debt fell by 2.6% in the quarter for the fifth consecutive quarterly decline.
Put these two headlines together and I think they add up to a growing economy in 2010 but one where growth continues to be hobbled by the consequences of boom and subsequent bust.
So, for example, yes, household net worth was up in the third quarter and that’s good for growth since consumers that feel wealthier spend more. Consumer spending accounts for roughly 70% of U.S. GDP.
But exactly how wealthy consumers feel in the remainder of 2009 and into 2010 will depend on how short their memories are. The value of household real estate in the third quarter was still $1.1 trillion below the value in the first quarter of 2009. And $1.7 trillion below the value in the third quarter of 2008.
And for households with really long memories the value in the third quarter at $16.5 trillion, according to the Fed, was $5.6 trillion below the 2006 real estate peak.
The drop in the value of stocks held by households from the peak of $9.4 trillion in 2007 to the third quarter’s $7.4 trillion comes to $2 trillion.
And while rising real estate and stock market wealth may make a consumer feel better, most of spending comes out of income (and borrowing against income or financial assets. But remember there’s a credit crunch still going on that’s making borrowing harder for many people.)
I think this proves that the money that has come back is in the hands of the wealthier and not the hands of the majority of people.
That would explain the rise in cash and the foreclosure standing.
The high foreclosure level could have been controlled. Anyone can walk away from their mortgage without prosecution…too expensive for the banks and ignored by feds as they play political football with health care and such. Govt and banks have lost so much respect that people are realizing that there is no danger in having bad credit as ther will always be help for the “less fortunate”. Socialism at work. Don’t reelect anyone.
And what’s with Ben and Tim. First, Ben says “formidable headwinds”, and then Tim warns to be prepared for another possible credit crisis. Are they trying to talk some sense to the market?
Translation: The recession ain’t over til the fat lady spends. 😉