US household net worth surged in final quarter of 2020

It increased 5.6% to $130.2tn in the October-December period

A neighbourhood in the Pacific Beach, California. Record-low mortgage rates attracted first-time homebuyers as well as those looking for more space in the fourth quarter of last year. Bloomberg 

US household net worth soared in the closing months of 2020 to a fresh record, driven by rising stock prices and residential real estate values after the government took unprecedented steps to ease the financial fallout from the pandemic.

Household net worth increased by $6.9 trillion, or 5.6 per cent, to $130.2tn in the fourth quarter to December 31, a Federal Reserve report showed.

Household debt increased at an annual rate of 6.5 per cent, the fastest in 13 years, according to data compiled by Bloomberg.

Record-low mortgage rates attracted first-time homebuyers as well as those looking for more space. A measure of home prices in 20 US cities surged by more than 10 per cent in December from a year earlier. At the same time, stocks continued to rally.

The report showed the value of equities increased by almost $4.9tn, while the value of real estate held by households by $915 billion. Mortgage debt grew at an annual rate of 5.2 per cent after rising 5.7 per cent in the third quarter, the biggest back-to-back increases since 2007.

In addition to the jump in wealth from homes and stock portfolios, Americans also saw another big jump in savings. This provides consumers with plenty of firepower for spending and helps explain why economists are projecting stronger economic growth figures this year.

Net savings for all of 2020 increased to a record $2.85tn, more than double the previous peak in 2018.

The data also highlighted the unevenness of the economic recovery.

While the pandemic has led to a surge in savings and opportunities for many Americans to buy a home or invest, the downturn has disproportionately impacted low-income workers, many of whom are struggling to pay their rent.