By Jason Lange
WASHINGTON Dec 6 The net wealth of U.S.
households rose in the third quarter to its highest since late
2007, providing a hopeful sign for future consumer spending.
Net financial wealth grew $1.72 trillion to $64.77 trillion,
the Federal Reserve said on Thursday.
That left household wealth $1.2 trillion short of where it
stood in the fourth quarter of 2007, just as the economy was
sinking into a severe recession. Wealth peaked at $67.3 trillion
in the third quarter of that year.
Rising home prices helped drive the increase in the latest
quarter. The value of real estate owned by households rose about
$300 billion, the Fed said. Stock holdings climbed by about $520
Increases in wealth could make consumers feel more
comfortable spending their money. Many economists think
consumers spend a few cents of every dollar they gain in wealth.
The data, part of the Fed's quarterly Flow of Funds report,
also showed Americans continued their four-year-old effort to
Households cut debt at a 2 percent annual rate in the third
quarter, the steepest drop since the second quarter of 2011.
Household debt fell $65.5 billion to $12.87 trillion. That
reversed a small gain logged over the prior three quarters, a
possible sign that households still feel they need to cut debt.
A housing bubble led household debt to soar in the first
half of the last decade, peaking as a share of families' income
After the housing bubble started to deflate in 2006, the
country went through its deepest recession since the Great
Depression and households have been shedding debts since 2008 by
taking out fewer mortgages or defaulting on loans.
In the third quarter, total household liabilities were 112.7
percent of after-tax income during the third quarter, the lowest
since 2003 and down from 113.4 percent in the second quarter.
Economists are divided over how much further households have
to go in this deleveraging process. Further debt reduction would
leave less money for spending, slowing the wider economy.
While total debt as a share of income remains historically
high, one measure kept by the Fed has shown that monthly debt
payments as a share of income in the second quarter were at the
lowest since 1993.