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Dec 11, 1:33 PM EST

Americans' wealth slips in 3Q as stock values fall


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WASHINGTON (AP) -- Americans' net worth slipped in the July-September quarter as shrinking stock portfolios overwhelmed a solid gain in home values.

U.S. household wealth declined 0.2 percent in the third quarter to $81.3 trillion, the Federal Reserve said Thursday. Americans' stock and mutual fund portfolios shrank $700 billion. The value of their homes increased $245 billion.

The slight drop comes after Americans' wealth rose to a record in the April-June quarter. A booming stock market and a rebound in home values have enabled the nation's net worth to rebound from the Great Recession and reach new highs.

Yet other data shows that those gains have mostly benefited wealthier households, while leaving middle-class wealth largely unchanged.

Still, last quarter's increase in home values could help boost spending in the months ahead. Rising home prices can make people feel more financially secure and more willing to spend. This "wealth effect" could boost growth.

The Fed's figures aren't adjusted for population growth or inflation. Household wealth, or net worth, reflects the value of homes, stocks and other assets minus mortgages, credit cards and other debts.

The fall in stock portfolios occurred even though the broad S&P 500 stock index crept upward 0.6 percent during the quarter. But there was significant volatility in August and September amid fears of slowing global growth. Stock prices plunged then recovered to reach new highs. The S&P 500 index has increased 9.6 percent this year.

The volatility likely prompted many Americans to dump some of their stock holdings.

During the recession, net worth plummeted, tumbling to $54.9 trillion in the first quarter of 2009 from a pre-recession peak of $67.9 trillion.

The gains since then haven't been equally distributed.

The typical U.S. household saw its net worth actually decline 1.2 percent from 2010 to 2013, according to new research published this week.

Edward Wolff, an economics professor at New York University, calculates that the median household's net worth was just $63,800 in 2013, down from $64,600 in 2010. That decline came after a huge drop from 2007 to 2010, when median net worth plummeted 44 percent from $115,100.

The small decrease from 2010 to 2013 occurred despite big run-ups in stock and home prices over that period. So why haven't middle-class households benefited more?

Wolff cites two factors. First, middle-income households rely much more than wealthier households on the value of their homes. Houses accounts for nearly 63 percent of middle-class assets, Wolff said in a paper released Monday. That compares to just 9 percent for the wealthiest 1 percent.

Meanwhile, most stock market wealth is held by the top 10 percent of households, which owns 80 percent of stocks. Only 9.5 percent of middle-class assets are in stocks.

The second reason, Wolff says, is that stagnating incomes likely forced many middle-income earners to sell assets and use the cash to cut their debt levels and maintain consumption. Median household income slipped from $49,000 in 2010 to $46,700 three years later, according to Fed data.

This trend can be seen in other data. Middle-class households are now less likely to own homes, as their home ownership rate fell from 68 percent in 2010 to 66.7 percent three years later.

Retirement savings have suffered even more. The percentage who owned defined-contribution retirement accounts, such as 401(k)s and IRAs, fell from 53 percent in 2007 before the recession, to 44 percent in 2013. The dollar value of middle-class accounts dropped 16 percent during that period.

"They were still depleting their assets because income remained very sluggish," Wolff said.

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