June 6, 2013 / 4:16 PM / 5 years ago

Household wealth surges in first-quarter on stock, home prices

WASHINGTON (Reuters) - A jump in stock and home prices pushed U.S. household wealth up by $3 trillion in the first quarter, surpassing levels last seen before the 2007-09 recession and giving a hopeful sign for future consumer spending.

Financial wealth grew to a record high of $70.3 trillion, the Federal Reserve said on Thursday. It was the biggest quarterly increase since the fourth quarter of 1999.

Stock holdings climbed by about $1.5 trillion, while the value of real estate owned by households rose about $784 billion.

The data could help explain why U.S. consumer spending has appeared relatively robust despite tax hikes enacted in January.

Increases in household wealth make it easier for families to borrow against the equity in their homes, while overall wealth gains make consumers feel generally more comfortable spending their money.

Many economists think consumers on average spend a few cents of every dollar they gain in wealth.

U.S. household wealth had previously peaked at around $68 trillion in the third quarter of 2007.

The data, part of the Fed’s quarterly report on financial accounts in the United States, also showed Americans continued to shed debt in the wake of the 2007-09 recession and financial crisis.

Households cut debt at a 0.6 percent annual rate in the first quarter. Total household debt fell $19 billion to $12.8 trillion, the Fed said.

A U.S. housing bubble led household debt to soar in the first half of the last decade, peaking as a share of families’ income in 2007.

After the housing bubble started to deflate in 2006, the country went through its deepest recession since the Great Depression. U.S. households have been shedding debt since 2008 by taking out fewer mortgages or defaulting on loans.

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 fourth quarter were at their lowest level since at least 1980.

In the first quarter, a drop in incomes led a gauge of the burden of debt to rise for households for the first time since 2009. However, economists suspect the drop in incomes was a temporary payback for the spike in incomes during the fourth quarter, when many employers brought forward employee compensation ahead of the tax hikes scheduled for January.

Total household liabilities were 112 percent of after-tax income in the first quarter.

Reporting by Jason Lange; editing by Andrea Ricci, G Crosse

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