High Home Values Boost Net Worth Of U.S. Households

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High Home Values Boost Net Worth
Of U.S. Households

By RAFAEL GERENA-MORALES and JAMES R. HAGERTY
March 10, 2006; Page A2

The rising value of U.S. homes boosted the net worth of American households to a record in the fourth quarter, but higher interest rates could slow home-price appreciation in the months ahead.

Meanwhile, new claims for unemployment insurance rose slightly in the week ended March 4.

U.S. households' total net worth rose 2.3% to $52.11 trillion as consumers took on slightly less debt in the period, the Federal Reserve reported in its quarterly "flow of funds" data. Net worth measures household assets minus liabilities.

Yesterday's report shows that "consumers are in quite good shape," said Bob Mellman, an economist at J.P. Morgan Chase & Co. But he expects the growth of Americans' net worth -- and consumer spending -- to slacken in coming months as the housing market slows.

The average rate for 30-year fixed-rate mortgages has reached the highest level since September 2003, Freddie Mac reported. The mortgage finance company's weekly survey put the average at 6.37% for the week ended yesterday. That compares with 6.24% a week before and 6.44% in early September 2003.

Americans have taken advantage of low rates to buy homes they otherwise couldn't have afforded. Now rising rates are pricing more people out of the market or forcing them to search out smaller homes.

Strong job growth in much of the country has helped support housing demand, but supply is rapidly increasing. In the Boston area, for example, the number of condominiums on the market at the end of February was 5,592, up 91% from a year earlier, according to MLS Property Information Network Inc.

The Fed's data showed that U.S. nonfinancial debt grew at a 9.5% annual rate in the fourth quarter, down slightly from a revised 9.6% in the third quarter. Nonfinancial debt includes borrowing by consumers, nonprofit groups, governments and businesses excluding banks, credit unions and other financial firms.

For all of 2005, nonfinancial debt also grew 9.5%, the fastest annual rate since 1986. Household debt last year grew 12%, faster than any other debt category. Last year's rise in household debt was the fastest since 1985.

The latest data marked the 13th-consecutive quarter of growth in household net worth. For 2005 as a whole, household net worth grew about 8%. But the wealth gains aren't evenly distributed, and lower-income people tend to have much higher debt loads, making them more vulnerable to a weaker housing market, said Diane Swonk, chief economist at Mesirow Financial in Chicago. "We have a bifurcated consumer," she said.

Separately, the Labor Department said initial jobless claims rose 8,000 to a seasonally adjusted 303,000 in the week ended March 4.

Write to Rafael Gerena-Morales at rafael.gerena@wsj.com³ and James R. Hagerty at bob.hagerty@wsj.com⁴

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