American households lost about $6.8 trillion in wealth over the first three quarters of 2022 as the stock market
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shed more than 25% of its value, the Federal Reserve reported Friday in the government’s quarterly financial accounts. Nominal net worth fell 4.6% to $143.3 trillion, as the market value of assets fell by $6 trillion and liabilities rose by about $900 billion. Households’ balance sheets were propped up by a 10% increase in home equity, which is the greatest source of wealth for most American families.
But the loss in real wealth from January through September was about twice as large — $13.5 trillion in current dollars — after accounting for the rapid inflation experienced this year. Inflation makes both debts and liabilities worth less in terms of purchasing power. The 8.6% drop in real wealth over three quarters is the second-fastest decline on record (the data series begins in 1959). The only greater drop was following the financial crisis of 2008-09. (The wealth lost during the Great Depression of the 1930s would likely hold the record if we had the data.)Balance sheets healthy — for now Even after adjusting for inflation, real household wealth was about 10% higher than it was in late 2019, just before the COVID-19 pandemic hit. Household balance sheets — in the aggregate — remained in excellent shape despite the losses on Wall Street and the erosion of purchasing power. Wealth as a share of annual disposable (after-tax) personal income slipped slightly to 769%, not far off the record 825% in the first quarter of the year. At $18.8 trillion, liabilities were just 103% of annual disposable incomes, far below the peak of 136% seen in 2008, just as that housing bubble burst. In real terms, liabilities are lower today than they were back then, despite the much larger economy. Homeowners, in particular, were in good shape financially as September ended, with the equity in their houses rising to a near-record 70.5% of market value from a record low of 46% in 2012. But if home prices continue to fall as they have done in the past several months, homeowners without much exposure to the stock market will begin to fe …