American household wealth dropped by $400 billion in the third quarter due to stock price declines outpacing real estate gains, according to the Federal Reserve.
A Friday report from the Fed shows household net worth declined from $143.7 trillion at the end of June to $143.3 trillion at the end of Sept., Reuters reported. It was the third consecutive quarter household wealth declined following a record drop in the second quarter.
The Fed just released the Q3 2022 household wealth data. Lots of new data, but the headline result is that total wealth declined slightly by about $0.4 trillion, as another ~$2 trillion in stock market wealth was erased. This was almost offset by other categories increasing pic.twitter.com/tQL7lDIfPI
— Jeremy Horpedahl 🤷♂️ (@jmhorp) December 9, 2022
In the third quarter, U.S. stocks lost almost $2 trillion in value amid inflation worries and the Fed’s interest rate increases, Reuters reported. Economists’ forecasts predict the stock market downturn will continue into 2023 for U.S. and global markets. (RELATED: Key Inflation Metric Shows High Prices Aren’t Going Anywhere Just Yet)
The decline of stock values is the primary reason for the $7 trillion loss in household net worth this year, after government relief brought household net worth to a record high at the end of 2021, according to Reuters.
Interest rate increases have caused the second-biggest housing market correction since World War II, according to Fortune Magazine. The average 30-year mortgage rate is near 7% as of Dec. 12 and some forecasts predict mortgage rates will continue to rise, Forbes Magazine reported.
Household cash stockpiles remained effectively unchanged in the third quarter at $18.4 trillion, down $134 billion from the first quarter. Cash stockpiles are measured based on the sum of balances in checking accounts, savings and time deposits and money market funds.
The Federal Reserve raised interest rates from 1.50-1.75% to 3.00-3.25% from June to September in order to combat inflation. Fed Chair Jerome Powell indicated interest rates would continue to increase at a slower pace in a Nov. 30 speech. The central bank will announce its next move on Wednesday following two days of meetings.