Homeownership Makes Most Americans Poorer

by 25 Apr 2013

From 2009 to 2011, the mean net worth of the top 7 percent of American households rose by 28 percent, while the mean net worth of households in the lower 93 percent dropped by 4 percent, largely because wealthy Americans have the bulk of their holdings in stocks and bonds while most Americans rely heavily on home equity for their personal wealth.

According to a Pew Research Center analysis of newly released Census Bureau data, from 2009 to 2011, the mean wealth of the 8 million households in the more affluent group rose to an estimated $3,173,895 from an estimated $2,476,244, while the mean wealth of the 111 million households in the less affluent group fell to an estimated $133,817 from an estimated $139,896.

Because of these differences, wealth inequality increased during the first two years of the recovery. The upper 7 percent of households saw their aggregate share of the nation’s overall household wealth pie rise to 63 percent in 2011, up from 56% in 2009. On an individual household basis, the mean wealth of households in this more affluent group was almost 24 times that of those in the less affluent group in 2011. At the start of the recovery in 2009, that ratio had been less than 18-to-1.

During the period of the study, the S&P 500 rose by 34 percent (and has since risen by an additional 26 percent), while the S&P/Case-Shiller home price index fell by 5 percent, continuing a steep slide that began with the crash of the housing market in 2006.  Housing prices have slowly started to rebound in the past year but remain 29 percent below their 2006 peak.

The different performance of financial asset and housing markets from 2009 to 2011 explains virtually all of the variances in the trajectories of wealth holdings among affluent and less affluent households during this period. Among households with net worth of $500,000 or more, 65 percent of their wealth comes from financial holdings, such as stocks, bonds and 401(k) accounts, and 17 percent comes from their home. Among households with net worth of less than $500,000, just 33 percent of their wealth comes from financial assets and 50 percent comes from their homes.

According to the S&P/Case-Shiller home price index, home prices peaked nationally in the first quarter of 2006 at 191. From the peak until the second quarter of 2009, home prices declined 31 percent. Though the economic recovery commenced in June 2009, hemorrhaging in the national housing market continued. Home prices fell an additional 5 percent from the second quarter of 2009 until the fourth quarter of 2011. National home prices bottomed out at the end of 2011; during 2012 they recovered the declines sustained since the start of the economic recovery, but they remain below the 2006 peak.

Wealthier households tended to gain most of the wealth created from 2009 to 2011 because they were much more likely to own the assets that rose the most in value. From 2009 to 2011, average net worth per household rose 14 percent overall. However, average net worth excluding home equity rose 31 percent, from $195,650 in 2009 to $255,843 in 2011. Much of the nation’s net worth excluding home equity is in financial assets, and the nation’s households with at least $500,000 of net worth were more likely to own financial assets, particularly the financial assets that rose the most in value from 2009 to 2011.

In 2009 households with at least $500,000 of net worth owned 72 percent of the nation’s aggregate net worth but 81 percent of the nation’s aggregate financial assets.

The Census Bureau reports the average value for specific assets among the households that own that specific asset. Very large gains in average holdings were reported for specific categories of financial assets. For example, the average value of 401(k) and Thrift Savings Plan accounts rose 57 percent from 2009 ($76,086) to 2011 ($119,799). The mean value of directly owned stocks and mutual funds rose 51 percent from 2009 to 2011. Among households owning assets in the category of “other interest-earning assets,” or direct owners of government securities or municipal and corporate bonds, the average holdings of those securities and bonds rose nearly fivefold from 2009 ($164,342) to 2011 ($803,641).

Average gains in other important asset categories paled by comparison. Reflecting the decline in house values nationally from 2009 to 2011, average equity in one’s own home fell 16%. The mean value of rental properties tumbled 32 percent from 2009 to 2011, and the value of “other real estate equity” (vacation homes and other real estate) declined 2 percent. Most households (70 percent) own an interest-bearing account at a bank or other financial institution, such as a certificate of deposit, savings account or money market deposit account. The average value of these accounts fell 19 percent from 2009 ($27,275) to 2011 ($22,170).

Turning to asset ownership rates, households with a net worth of at least $500,000 were much more likely to own the financial asset categories that experienced large gains in average value. In 2011, households with a net worth of at least $500,000 were about 13 times as likely as households with less than $500,000 in net worth to directly own government securities and municipal and corporate bonds: 13 percent for high net worth households versus 1 percent for lower net worth households. Differences in the likelihood of ownership were also pronounced for other high-performing financial asset categories. For example, 59% of households with a net worth of at least $500,000 directly own stocks or mutual fund shares. By comparison, only 13 percent of lower net worth households directly own these assets. Almost two-thirds of households with at least $500,000 of net worth owned a 401(k) or Thrift Savings Plan retirement account in 2011. Among households with less than $500,000 in net worth, only 39% owned one of these assets.

In the aggregate, all of the total $5.0 trillion increase in household wealth from 2009 to 2011 was the result of increases in various types of financial assets. These gains were heavily concentrated among the affluent. For example, the value of wealth in government securities and corporate and municipal bonds rose $2.2 trillion from 2009 ($0.6 trillion) to 2011 ($2.8 trillion). The value of such assets held by households with at least $500,000 in net worth rose $2.2 trillion and hence high net worth households were the sole gainers in that lucrative asset class. The value of directly owned stock and mutual funds rose $1.4 trillion. The value of direct stock holdings owned by high net worth households rose $1.4 trillion. Wealth in 401(k) and Thrift Savings Plan accounts rose $2.2 trillion. The value of such holdings among households with at least $500,000 in net worth rose $2.1 trillion.

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